Are you looking for great high-yield investment alternatives? We asked three of our top healthcare contributors to weigh in on which dividend stocks were solid picks in the sector.
Their responses included a biotech (AbbVie (NYSE:ABBV)), a real estate investment trust (REIT) -- (Omega Healthcare Investors (NYSE:OHI)), and a generic/specialty-drug maker (Teva Pharmaceutical Industries (NYSE:TEVA)). Here's why you might want to check out these high-yield healthcare stocks.
Best biotech dividend stock around
Keith Speights (AbbVie): With apologies to Sir Mix-A-Lot, I like big checks and I cannot lie. My favorite high-yield biotech dividend stock is AbbVie. This big biotech sports a dividend yield of 3.9%. And there's plenty more to like.
For one thing, AbbVie has increased its dividend every year of the company's existence. Since the biotech was spun off by parent Abbott Laboratories, AbbVie has grown its dividend by 60%.
There doesn't appear to be much risk that the dividend will be cut any time in the foreseeable future, either. AbbVie uses just over 60% of its earnings to fund the dividend program. That leaves plenty of wiggle room for future increases.
Even better, the company's earnings should increase solidly over the next few years. AbbVie continues to see nice growth with its top-selling drug, Humira. The biotech also claims fast-rising cancer drug Imbruvica on its roster.
Several pipeline candidates should help fuel growth as well. Rova-T could supplement Imbruvica and Venclexta in AbbVie's oncology lineup. Experimental autoimmune disease drugs risankizumab and ABT-494 appear to be on track to join Humira in 2019. AbbVie plans to file for regulatory approval for elagolix in treating endometriosis this year, with results from a late-stage study of the drug in treating uterine fibroids on the way by 2018.
High yield, reasonable payout ratio, and strong earnings growth potential. It's hard to beat AbbVie.
A quarterly crowd pleaser
For 18 straight quarters, Omega has raised its payout, from $0.40 in October 2011 to $0.62 this February, and it's got plenty of runway to continue giving its shareholders something to look forward to every 90 days. Last year, funds from operations (FFO) rose 29.8% over the previous year, to $3.27 per share, and management expects between $3.38 and $3.42 this year. The latest payment annualized works out to about 73% of the lower end of this year's FFO per share guidance.
Looking further ahead, Omega Healthcare looks well positioned to benefit from America's fastest-growing demographic. Longer life spans and scores of baby boomers entering their twilight years should continue raising demand for skilled-nursing and long-term care facilities for many years to come.
Although I might not recommend investing in individual operators of such facilities, Omega merely collects rent and mortgage payments. In other words, its customers don't necessarily need to thrive for the company to grow -- they just need to pay their bills. That makes this a high-yield dividend stock that's easy to hang on to for the long haul.
This isn't your "generic" income stock
Sean Williams (Teva Pharmaceutical Industries): When I think of superior-yielding healthcare stocks, I'm instantly drawn (and clearly biased) toward Teva Pharmaceutical, a holding in my personal portfolio.
Teva, a hybrid drugmaker of branded and generic therapeutics, has had a rough go over the trailing year. Shares of the company have lost nearly half of their value based on a confluence of factors. This includes Copaxone, the company's lead branded therapy for multiple sclerosis (MS), expecting to face generic competition in the months that lie ahead, as well as the admission of bribery in select overseas markets. Teva also recently underwent a CEO change. In many ways, Teva's stock downtrend has been merited.
However, it's my contention that Teva and its 4% dividend yield may be ripe for the picking. For instance, Teva managed to reformulate Copaxone from a once-daily injection to a thrice-weekly injection, which is more convenient for MS patients. Though the patent battle over this reformulation is ongoing, Teva should be able to adequately shield a significant portion of its sales from generic competition. Plus, Teva has years of rapport built with patients and physicians that could keep them loyal to the Copaxone brand. This isn't to say Teva will be able to retain all of its Copaxone sales, but the rate at which Copaxone sales will deteriorate may be overstated by Wall Street analysts.
More importantly, Teva recently acquired generic-drug unit Actavis from Allergan for $40.5 billion in a cash-and-stock deal. This deal makes Teva the largest generic-drug maker in the world. Although the acquisition boosted the company's debt load, that's far from an issue. The combined entity should be able to squeeze out $1.4 billion in annual cost synergies as early as 2019, and as a result it'll likely have better pricing power based on its size. Not to mention, as branded therapies grow more expensive, global governments and insurers will frequently push for greater generic-drug usage. Teva can win the battle from both angles.
While its dividend is somewhat of a hodgepodge that's based on profitability, Teva has consistently been paying $0.289 per quarter over the past eight quarters. At 4%, Teva's yield is roughly double that of the S&P 500. With strong profits and a single-digit forward P/E expected, Teva is an income stock I believe you can trust.
Cory Renauer has no position in any stocks mentioned. Keith Speights owns shares of AbbVie. Sean Williams owns shares of Teva Pharmaceutical Industries. The Motley Fool recommends Teva Pharmaceutical Industries. The Motley Fool has a disclosure policy.