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3 High-Yield Healthcare Dividend Stocks to Buy in 2018

By Keith Speights - Dec 22, 2017 at 8:25AM

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These healthcare stocks pay you nicely to own them.

If you put high-yield dividends and healthcare stocks together, it's a winning combination. High dividend yields are appealing for the obvious reason -- more money for you. And healthcare stocks are attractive because the sector represents nearly one-fifth of the U.S. economy, and demand for healthcare services should grow in the future.

But which high-yield healthcare dividend stocks look like smart picks for 2018? I'd put Medical Properties Trust (MPW 0.49%), Omega Healthcare Investors (OHI 0.71%), and Pfizer (PFE -2.03%) near the top of the list. Here's why.

2018 with a silver ornament opened with cash in it in the place of the 0

Image source: Getty Images.

Medical Properties Trust

Let's start with Medical Properties Trust's fantastic dividend yield of 6.86%. If the company kept on paying dividends at that level and you reinvested them, your initial investment would double in around 12 years -- even if the stock didn't gain a penny.

But can Medical Properties Trust keep the dividends flowing? I think so. The company is organized as a real estate investment trust (REIT), which means it must return at least 90% of earnings to shareholders as dividends. Medical Properties Trust receives all of its revenue from leasing properties to hospital operators. These leases are usually for long-term periods of at least 15 years. That translates to a relatively steady income stream. 

The stock is definitely more of an income play than a growth story, though. Over the past five years, Medical Properties Trust stock is up by only 15%, compared to the S&P 500 index's gain of 85% during the period. That's not to say there aren't opportunities for the company to grow. Medical Properties Trust completed several major acquisitions in 2017 and will probably make more in the future.  

Omega Healthcare Investors

Another healthcare REIT to consider is Omega Healthcare Investors. Omega's dividend currently yields an eye-popping 9.22%. The company has also increased its dividend for 21 consecutive quarters. 

Omega Healthcare Investors primarily focuses on skilled nursing facilities (SNFs). As of Sept. 30, the company owned 772 SNFs plus another 120 assisted-living facilities, 16 specialty facilities, and one medical office building. Its lease terms range from five years to 15 years. 

Like Medical Properties Trust, Omega's attraction is for its income rather than growth prospects. The stock has increased by only 18% during the past five years. Omega's performance in 2017 was marred by disappointing third-quarter results. The company wrote down nearly $195 million after one of its customers slipped more than 90 days into arrears. Still, this wasn't enough to affect Omega's dividend payout.

I wouldn't count on seeing the quarterly dividend increases continue indefinitely. However, if you like to receive fat dividend checks, Omega Healthcare Investors appears to be a prime investing candidate. 

Pfizer

Pfizer is sort of the oddball of the group in a couple of ways. First, it's not a REIT. Second, Pfizer's dividend yield isn't at the sky-high levels of Medical Properties Trust or Omega Healthcare Investors. But the drugmaker's yield of 3.44% is nothing to shrug off. And Pfizer could deliver growth that neither of the REITs will.

In a sense, Pfizer is three businesses rolled into one. The biggest moneymaker for the company is its innovative health segment, which markets blockbusters including nerve pain drug Lyrica, blood thinner Eliquis, and cancer drug Ibrance, as well as many other drugs. This segment also includes the second core business for Pfizer -- consumer healthcare. Pfizer's essential-health segment sells the company's legacy drugs, for which sales are generally declining, but also includes a fast-growing biosimilars lineup and a large sterile-injectables business. 

Look for Pfizer's dividend to increase in the future, as the company's cash flow increases and it gets a boost from U.S. corporate tax reform. Pfizer's earnings should also grow faster than they have over the past five years, a period in which the stock gained 44%. Also, Pfizer is considering selling or spinning off its consumer healthcare business, which could provide a nice payout for investors.

Best pick

I like all three of these stocks. My favorite, though, is Pfizer. Why? It comes down to total return.

If your sole focus is on income, Medical Properties Trust and Omega Healthcare Investors are better choices. But when it comes to total return, Pfizer beat both of the REITs over the past five years. I expect that dominance will continue into 2018 and beyond.

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Stocks Mentioned

Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$51.37 (-2.03%) $-1.06
Omega Healthcare Investors, Inc. Stock Quote
Omega Healthcare Investors, Inc.
OHI
$28.39 (0.71%) $0.20
Medical Properties Trust, Inc. Stock Quote
Medical Properties Trust, Inc.
MPW
$15.35 (0.49%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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