The baby boomer generation was much larger than those before or after, and by 2050, all 77 million members will have celebrated their 85th birthdays. They're going to need a lot of healthcare, and it looks as if there'll be plenty of working-age millennials to pay the bills.
American adults under 35 might not fill everyone with confidence, but millennials already outnumber baby boomers, and they'll be contributing payroll taxes for a long time to come. Here's a pair of dividend-paying healthcare stocks that stand to benefit a great deal from this powerful demographic trend.
|Dividend Growth Past 5 Years
|AbbVie (ABBV 1.62%)
|Omega Healthcare Investors (OHI -0.39%)
AbbVie: The right products for tomorrow
Older adults are generally more susceptible to inflammatory conditions and cancer, which are two areas where AbbVie excels and is positioned to continue leading in the years ahead. Sales of the company's anti-inflammatory injection, Humira, are on pace to reach $20 billion this year, and the company's burgeoning oncology program keeps racking up important approvals.
Global Humira sales have probably hit a high-water mark now that the main patents protecting its market exclusivity in the U.S. and EU have expired, but AbbVie's blood cancer program is just getting started. In 2016, Imbruvica tablets became the first chemo-free treatment option for patients newly diagnosed with the most common form of leukemia. This year, Venclexta earned FDA approvals to stabilize leukemia patients following other treatments and is now approved for treating first-line acute myeloid leukemia patients 75 and older.
The company's flagship treatment is expiring, but an increasing number of older adults seeking treatment for autoimmune disorders could continue to drive sales growth for AbbVie in the years ahead. That's because AbbVie has two experimental therapies in late-stage development, one for psoriasis and another for rheumatoid arthritis, and successful launches for both would help investors quit worrying about Humira.
AbbVie's years of blazing fast dividend growth are probably in the past, but steady raises over the long run seem entirely possible. Despite boosting the payout 51% higher in 2018, to an annualized $4.28 per share, management also expects adjusted earnings to reach at least $7.90 per share for the full year. That means the company can probably keep up with quarterly payments even if Humira sales tumble faster than expected.
Omega Healthcare Investors: Nice and steady
Investors who find the business of drug development far too risky will want to consider Omega Healthcare Investors. This is a real estate investment trust, or REIT, that owns, but doesn't operate, skilled nursing facilities across the country.
Being a nursing home landlord isn't an exciting business, but retirees find Omega's steady cash flows thrilling. Nearly all of this REIT's clients sign long-term triple-net leases that leave tenants responsible for all the variable costs that come with building ownership, such as maintenance and taxes.
This REIT offers such a juicy yield now, because Orianna, an operator that had been renting dozens of Omega buildings, can't pay its bills anymore. In January, Omega Healthcare announced the 22nd consecutive increase to its quarterly dividend, but trouble with Orianna will keep the payout from rising any further in 2018.
Once 19 remaining Orianna facilities become unstuck from ongoing bankruptcy proceedings, shareholders can probably look forward to quarterly payout bumps as usual. Omega expects funds from operations to reach $3.03 per share in 2018, more than enough to cover dividend payments currently set at an annualized $2.64 per share.
Nursing home reimbursement rates are expected to rise slightly in the near term, which suggests we won't see any more of Omega's operators sliding into arrears. Government payers will probably adjust the way they reimburse Omega's operators for nursing home services again before 2050, but they can't do much about the ongoing demographic shift that keeps providing more patients.
In for the long haul
While investors might not see a whole lot of excitement from Omega Healthcare shares, that doesn't mean they can't outperform if you hold them long enough. Investors who have held the stock for the past 10 years have seen a 517% total return, which is a whole lot better than the 282% total return the S&P 500 delivered over the same time frame.
AbbVie's going to be on the opposite end of the excitement spectrum in the decades ahead, but investors still holding on to these shares in 2050 will be awfully glad they decided to ride the roller coaster.