Investing in proven businesses that provide the world with essential goods or services can be a winning investing formula. This is because critical products and services often bring pricing power and steady demand.
In the healthcare sector, there's no shortage of companies that the world could not live without. Here are two that could help you to build significant wealth over the long run.
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1. Stryker: A medical devices giant
With a $110 billion market capitalization, Stryker (SYK -0.46%) is the world's third-largest medical devices manufacturer, behind only Abbott Laboratories and Medtronic. What supports this large-cap valuation?
Stryker holds thousands of patents for its medical devices, which are used to help surgeons deliver optimal health outcomes across a wide range of areas. These include sports medicine, craniomaxillofacial surgery, hospital beds, artificial knees and hips, robotics, and navigation. Because of its diversified portfolio of medical devices, Stryker's 51,000 employees and its products reach approximately 130 million patients each year in 75 countries.
As the numbers of surgical and diagnostic procedures increase alongside the number of inpatient admissions to hospitals, the demand for medical devices should keep growing. This is why the market research company Fortune Business Insights estimates that the global medical devices industry will grow at a compound rate of 5.9% each year from $512.3 billion in 2022 to $799.7 billion by 2030.
The strength of Stryker's product portfolio and its commitment to product launches could lead to promising prospects for the company. Thus, analysts believe that Stryker's non-GAAP (adjusted) diluted earnings per share (EPS) will rise by 9.1% annually through the next five years. That's in line with the medical devices industry's average annual earnings growth forecast of 9.4%.
Along with Stryker's 1% dividend yield, this could position the company to generate low-double-digit annual total returns over the medium term. And with the dividend payout ratio set to come in at under 30% in 2023, there's room for dividend growth. To cap it all off, shares trade at a forward price-to-earnings (P/E) ratio of 26.1. This is slightly less than the medical devices industry's average forward P/E of 27, which makes Stryker a buy for dividend growth investors.
2. Humana: Cashing in on growing demand for health insurance
With the cost of medical care mounting and disease rates rising as people live longer, health insurance has arguably never been more necessary than it is now. This explains why Data Bridge Market Research anticipates that the global health insurance market will grow from $1.9 trillion in 2022 to $2.7 trillion in 2030.
And such an encouraging industry outlook means that a health insurer like Humana (HUM -1.77%) is poised to do well in the future: The Kentucky-based health insurance company served 17.2 million medical members and 5.1 million specialty members (that is, holders of dental or vision insurance) as of March 31. This is why analysts believe Humana's earnings will climb by 13.6% annually over the next five years, better than the healthcare plans industry's average annual earnings growth of 11.9%.
Humana's current dividend yield of 0.8% may not seem like much relative to the S&P 500 index's 1.6% yield. But with the company's dividend payout ratio positioned to clock in at around 12% in 2023, there's plenty of room for huge growth in the payout in the years ahead. And shares of Humana can be scooped up at a forward P/E of 14.2. That's barely more than the healthcare plan industry's average forward P/E of 12.9.
