Calling dividend investors.
Possible changes to U.S. health care laws have made some investors wary of investing in health care stocks. But for long-term investors focused on dividends, the sector still holds a lot of potential regardless of short-term volatility. “Despite all the Washington noise and uncertainty surrounding health care reform, health care stocks should benefit from strong secular tailwinds,” says Anthony Saglimbene, a global market strategist at Ameriprise. He points to demographic benefits from an aging U.S. population as well as continued innovation in drugs and other health care products to drive bigger profits.
Merck & Co. (ticker: MRK)
Merck continues to see growth as its drugs look to fight common American health conditions. Its blockbuster diabetes drug Januvia, which helps lower blood sugar, accounts for some $4 billion in annual sales and its Zetia cholesterol medication racks up over $2 billion in annual sales. And it’s not done, says Nancy Perez, a portfolio manager at Boston Private Financial Holdings. “Merck kind of has a biotech inclination” she says, and boasts a strong product pipeline including cancer drug Keytruda that holds much promise going forward. The marriage of “maintenance” drugs to provide regular revenue will fuel dividends now, and new drugs could yield continued dividend growth.
Yield: 2.9 percent
Teva Pharmaceutical Industries (TEVA)
Teva is the world’s largest generic drug manufacturer. And while there admittedly isn’t as much growth in generics because the margins are smaller, there is a huge amount of baseline demand and thus the potential for reliable revenue. Shares of TEVA have suffered in the last two years as revenue has flatlined and its small number of patent-protected drugs haven’t yielded much. But what this generics company does yield is a juicy dividend about twice that of 10-year Treasury notes. There is potential for incremental growth as Teva keeps scaling up, particularly in emerging markets. But even if not, the payouts are generous and sustainable.
Yield: 3.7 percent
Cardinal Health (CAH)
Another boring but reliable segment of the health care business is medical supplies. And as one of the biggest health care products companies in the world, Cardinal dominates this field with everything from antiseptic wipes to patient slippers to advanced wound care products. If you’re ever in a hospital, chances are you’re surrounded by Cardinal items and don’t even know. Like many other stocks on this list, the reliability of this business leads to consistent profits and consistent dividend growth. In fact, its most recent payout of about 46 cents is double the 21.5 cents paid to shareholders at the beginning of 2012.
Yield: 2.4 percent
Novo Nordisk (NVO)
One of the biggest health care challenges is the rise in diabetes. The Center for Disease Control and Prevention estimates that the percentage of Americans with diabetes has soared from about 2 percent in 1970 to about 7 percent. That is a big opportunity for Novo Nordisk since it specializes in diabetes care and prevention, such as insulin injection technology and weight management products that can help at-risk patients. Headquartered in Denmark, NVO pays dividends only twice a year like many overseas corporations. But payouts are big (66.3 cents per share in March), growth potential is significant, and it’s easy to buy shares on U.S. exchanges.
Yield: 1.1 percent
Omega Healthcare Investors (OHI)
Omega is classified as a real estate investment trust. However, it focuses on senior living and long-term care properties that make it very much a health care play. Omega mainly operates “triple-net lease” properties, which means it’s not liable for three burdensome costs that can plague landlords — namely, taxes, maintenance and insurance. Think of Omega as a middleman that just collects the rent. Reliable rent checks result in reliable dividend payments, too, and since REITs must past 90 percent of taxable income on to shareholders the result is a juicy yield and high-yield health care stock that should pay off nicely for long-term investors.
Yield: 7.5 percent
Johnson & Johnson (JNJ)
As one of two U.S. corporations with a AAA credit rating, JNJ is as stable as they come. And why not, since the health care giant generates about $19 billion annually in cash flow and boasts over $39 billion in cash in the bank. That stable balance sheet comes from a reliable revenue stream that is hard to match in any sector. In addition to top-notch clinical products and pharmaceuticals, the company has the benefit of big-brand consumer products. All this provides reliability for share price. There’s plenty of incentive to hold on too, as Johnson & Johnson has raised its dividend each year for 54 consecutive years.
Yield: 2.5 percent
AbbVie (ABBV)
Spun off of Big Pharma mainstay Abbot Laboratories (ABT) in 2013, AbbVie is the drug-focused arm of the previous company. It’s home to a current blockbusters including psoriasis treatment Humira as well as a research-driven drugmaker looking for the next generation of big-name cures. Analysts are projecting revenue growth at ABBV of almost 10 percent this year and next, and profit expansion of 30 percent or better thanks to a strong pharmaceutical portfolio. And that success has translated into generous dividends, as the company has ramped up its payout from 40 cents after its initial spinoff to 64 cents per share just four years later.
Yield: 3.6 percent
Amgen (AMGN)
Though a few years ago Amgen was all the rage as Wall Street focused on the potential of next-generation cures out of the biotechnology industry, the company has settled down lately as revenue has plateaued. The good news is that Amgen has embraced its role as a $120 billion health care powerhouse, choosing to satisfy shareholders via dividends instead of wasting money on knee-jerk acquisitions or other fruitless efforts to chase unrealistic growth. AMGN has increased payouts a massive 310 percent since instituting regular dividends in 2011 but those payouts remain roughly a third of earnings and are ripe for future increases.
Yield: 2.7 percent
Pfizer (PFE)
Like other health care megacaps on this list, Pfizer doesn’t have a lot of growth potential to offer investors. It is already a $200 billion company and its product pipeline is largely replacing revenue lost by patent expirations on treatments such as its blockbuster Viagra. But remember, dividend stock investing is a long-term endeavor. It’s about consistent payouts and a stable business that will be there to keep paying you in several years, if not several decades. Pfizer has that in spades. The company has paid dividends in some form or fashion since 1901, and while distributions were slashed during the 2009 financial crisis, it has re-attained those payout levels.
Yield: 3.8 percent
CVS Health Corp. (CVS)
You may think of CVS as just a drugstore, but it’s also increasingly a core health care play thanks to its pharmacy benefits footprint. This includes its Omnicare arm that exclusively services long-term care facilities, as well as corporate pharmacy benefits programs that manage claims and payments. Throw in its growing clinics that provide in-store checkups and you can see this is more than just a retail stock. CVS has a huge footprint that allows it to be efficient and a great brand that makes it a force to be reckoned with. Those operations also help support reliable revenue that pays a nice dividend to shareholders.
Yield: 2.5 percent
GlaxoSmithKline (GSK)
GSK is a Big Pharma name you may recognize, but its stability and dividends don’t come simply from branded drugs. This giant is a leader in vaccines as well as over-the-counter products including Excedrin pain relievers and Sensodyne oral care products. Shares have been sleepy for the last few years as the product portfolio hasn’t really delivered any breakout winners. However, dividend investors shouldn’t be looking for a flashy new drug but rather reliable performance — and GSK has that thanks to more than $3 billion free cash flow last fiscal year.
Yield: 4.4 percent
More from U.S. News
10 Smart-Beta ETFs That Will Help You Get Your Alpha
9 of the Best High-Yield ETFs on the Market
7 Stocks That Could Save Your Portfolio
11 Health Care Stocks for a Regular Dose of Income originally appeared on usnews.com
