Healthcare Trio for Dividend Investors
10/31/2017 5:00 am EST
Big Pharma has deep pockets, growth through new drugs and price increases and strong balance sheets; investors who seek great dividends should take a closer look at the healthcare sector, explains Bob Ciura, editor of Wyatt Research's Daily Profit.
Consumers often cannot choose to go without medications and health-care products. This keeps the best-in-class health-care stocks solidly profitable, even during recessions.
And, many health-care companies pay significantly higher yields than the 2% average yield in the S&P 500. Let's examine the top three health-care stocks for dividend investors.
First, investors on the hunt for dividends should consider Johnson & Johnson (JNJ). The company is one of the largest health-care companies in the world and has a highly diverse product portfolio.
J&J has a number of growth catalysts to propel profits. First, it has a large pipeline of new drugs. Oncology and immunology are two of the company’s strongest areas in development, particularly attractive segments. J&J's oncology sales increased by over 20% last year, followed by 15% growth in immunology.
Plus, J&J will utilize acquisitions to accelerate growth. Earlier this year J&J announced plans to buy standalone R&D company Actelion for $30 billion. Actelion’s R&D focuses on rare health conditions with significant unmet need.
The stock currently pays a 2.5% dividend yield. It has increased its dividend for the past 55 years. This places it on the list of Dividend Kings, a small group of just 22 stocks with over 50 years of consecutive dividend increases.
Pfizer (PFE) and Amgen (AMGN) are making big bets on biotechnology, and paying significant dividends along the way. Pfizer, like J&J, is a global giant. And, it is an attractive stock for income, with a hefty 3.6% dividend yield.
Pfizer has had a long turnaround, after losing patent expiration on its flagship cholesterol drug Lipitor. Since then, it has reengineered its portfolio. Its major products now include Ibrance, Eliquis and Xtandi.
Meanwhile, Amgen focuses on serious illnesses under-served in the market. Amgen has six core therapeutic areas, including cardiovascular disease, oncology, bone health, neuroscience, nephrology and inflammation.
Amgen is struggling through declining sales of some key products, due to patent expirations. Two of the company’s largest products, Enbrel and Neulasta, saw revenue decline 1% and 5% last quarter, respectively.
Fortunately, Amgen is making up for this with growth from new products. Aranesp revenue increased 6% to $535 million, while Prolia grew by 14% to $505 million.
These new products will allow Amgen to continue increasing its dividend. Amgen has a 2.5% dividend yield, and the company increases its dividend at high rates. In 2017 the company raised its dividend by 15%.
Healthcare stocks have unique risks that investors should consider. Most importantly, they face the dreaded “patent cliff,” which can have a devastating effect on earnings as drug patents expire. The good news is that the best Big Pharma stocks invest heavily in R&D to restore growth after patent losses.
J&J, Pfizer, and Amgen have restocked their pipelines, and generate billions in cash flow. These companies use excess cash flow to reward shareholders with buybacks, and all three pay dividends above the average S&P 500 yield.