If you're near retirement or already retired, dividend stocks undoubtedly rank high on your list of investing alternatives. The healthcare sector is a great place to look for dividend stocks with aging demographics trends driving long-term growth.
But which healthcare dividend stocks provide high yields plus reasonable growth prospects? Here's why AbbVie (ABBV -1.03%), Gilead Sciences (GILD 0.07%), and Pfizer (PFE -0.19%) stand out.
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1. AbbVie
AbbVie's dividend yield of over 5.8% ranks as one of the highest among healthcare stocks. Even better, the drugmaker has increased its dividend by 168% since it was spun off from Abbott Labs in 2013.
The primary concern that some investors have with AbbVie is that the company is highly dependent on sales of Humira, which now faces biosimilar competition in Europe and will do so in the bigger U.S. market beginning in 2023. But AbbVie has been planning for this scenario for years and should be in a position to keep the dividends flowing while still delivering moderate growth.
Current blockbuster cancer drugs Imbruvica and Venclexta, both of which continue to generate strong growth, are a key part of AbbVie's strategy. Newly approved Rinvoq and Skyrizi are also critical to the company's growth prospects. Market researcher EvaluatePharma ranked the immunology drugs No. 2 and No. 3, respectively, on its list of top new drugs approved in 2019.
There's now another twist to AbbVie's approach to reducing its dependence on Humira: the pending acquisition of Allergan. Although some investors have been skeptical about the deal, at least one Wall Street analyst, Citigroup's Andrew Baum, is optimistic, stating that "AbbVie will extract significant shareholder value from Allergan's franchises."
2. Gilead Sciences
Gilead Sciences offers an attractive dividend that currently yields north of 4%. The big biotech initiated its dividend program in 2015 and has increased the payout by nearly 47% since then.
The past few years have been challenging for Gilead as revenue and earnings sank because of plunging sales for its hepatitis C drugs. But the company appears to have turned the corner now, with hep-C revenue stabilizing in recent quarters. This has changed the focus to Gilead's HIV franchise.
Biktarvy appears destined to become the best-selling HIV drug in history. Gilead also thinks that the potential for Descovy as preexposure prophylaxis (PrEP) therapy for HIV is significant. The biotech's pipeline includes a long-acting HIV drug in early stage testing, GS-6207, that could be another huge success story.
Perhaps the most intriguing opportunities for Gilead right now, though, are the company's efforts beyond the antiviral arena. The acquisition of Kite Pharma in 2017 has made Gilead a leader in cancer cell therapy. Gilead has high hopes for immunology drug filgotinib, which it plans to file for approval in the U.S. this year. The biotech is also evaluating a couple of drugs targeting the treatment of nonalcoholic steatohepatitis.
3. Pfizer
Pfizer is a longtime favorite for retirees. The big pharma company's dividend yield of over 4% should keep the stock near the top of the list for income-seeking investors. Pfizer continues to prioritize its dividend program, boosting its dividend by 125% over the past 10 years.
Probably the biggest knock against Pfizer is that several of its former top-selling drugs have lost patent exclusivity, notably including Lyrica. Declining sales for these drugs present a threat to the company's near-term growth prospects. However, Pfizer is taking concrete steps to address this issue.
The company plans to merge its Upjohn unit, which is home to the drugs that have lost patent protection, with Mylan. Pfizer CEO Albert Bourla expects that Pfizer will be able to "deliver revenue and adjusted diluted EPS [earnings per share] growth through the mid-2020s that is among the industry leaders" once this transaction closes. This growth will be fueled by blockbusters such as breast cancer drug Ibrance and blood thinner Eliquis as well as anticipated blockbusters like rare-disease drug Vyndaquel.
Don't worry about getting those great dividend payments after the Upjohn-Mylan deal is completed. Although Pfizer's dividend will almost certainly decline with Upjohn no longer in the picture, the new entity resulting from the merger will also pay a dividend. Pfizer shareholders will receive shares in the merged company, with the total amount of dividend payments received remaining at least at the current level of Pfizer's dividend.
