In the Ice Age, mammoths were fabulous beasts of their time -- so much so that some geneticists are pursuing their revival by using new technology, such as writing DNA, to clone them back into existence. But whether or not literal mammoths are returning to a tundra near you, certain "mammoths" of the healthcare space never left.
As mammoths of the healthcare industry, AbbVie (ABBV 0.94%), Johnson & Johnson (JNJ -0.31%), and UnitedHealth Group (UNH 0.74%) have been paying dividends for more than 10 consecutive years each (two of them for more than 45 years!). They also boast high five-year and one-year annual average dividend growth, and current stock prices are at or just shy of 52-week highs. It's not a bad place to be during a market that can sometimes be moody.
Now might be a good time for you, as an investor, to take a closer look at these fabulous healthcare dividend payers for your investment portfolio.
The leader of this group, based on its current annual dividend and average one-year dividend increases, is AbbVie. The research-based biopharma, which spun off from Abbott Laboratories in 2013, is probably best known for its (and the world's) top-selling drug, Humira, which treats arthritis, Crohn's disease, and ulcerative colitis. Humira brought in $19.8 billion in revenue during 2020.
The company currently pays out a dividend of $5.20 per share annually, at a yield of 4.44%. Its average annual dividend increase is also top-notch, at 28%. Basically, if you made an initial purchase of $3,000 worth of AbbVie stock at today's prices, you would get 25 shares. At the current rate of a 28% annual increase, your initial investment of $3,000 would be worth $4,110 after five years, including a 15% dividend tax rate, for a gain of 36%. That is based on the per-share stock price value remaining unchanged from the date of purchase.
AbbVie's stock price is also moving in the right direction, hitting a new 52-week high in the past week, a dime shy of $118. After a solid 2020 in which the company celebrated an increase in net revenue of 37%, management is providing guidance suggesting a 17% increase in earnings per share for 2021 at the midpoint.
One obstacle to keep an eye on is recent negative news related to the pricing of Humira. A few lawmakers are asking the U.S. Food and Drug Administration to make an inquiry into the possibility that the company had a hand in delaying cheaper competitor products. In June 2020, a Chicago district court ruled in favor of AbbVie's patent strategy (basically, creating layers of patents), saying it does not violate antitrust laws. This makes it difficult for less expensive generics to enter the market.
Currently, AbbVie has nine settlements with manufacturers for launch of generic versions of Humira in 2023; that said, some of the patents extend to 2034, meaning other manufacturers would need to work with AbbVie in order to launch new candidates. This could actually work in investors' favor if a share price drop is short-term -- it's a better buy-the-dip opportunity to get a few more shares while still enjoying an excellent dividend. This will be one to keep an eye on for any news related to patent litigation.
Getting better with age
Johnson & Johnson (J&J) might be seen as the older and wiser of the three businesses. Having been around for over 130 years, the company started with the first mass-produced antiseptic. In 2020, management turned its focus to the coronavirus pandemic, leading to one of three primary vaccinations approved for COVID-19.
Throughout all of those years, J&J has rewarded its shareholders. The company currently pays out a healthy dividend of $4.04 per share, equating to a 2.37% yield. The numbers are similar to those of its peers in the healthcare sector, with the average being 2.28%. And for healthcare companies in the S&P 500, J&J tops the average of 1.75%.
The only downside, if you can consider it that, is in comparing it to the other two mammoths in this group. J&J's modest 6.6% annual dividend increase amounts to the group low of 19.88% over the past three years. But to its credit, the company has been increasing the payouts, so that's a good thing.
As far as stock price goes, J&J is standing toe-to-toe with the group. It's currently just short of a 52-week high, set recently. And if the 2021 outlook and results from the first quarter are any indication, the company should be in line to match the one-year target price of $187, setting up for an additional 10% gain from the current price. Add in a nice little chunk of change from dividends, and it should keep investors happy.
United we stand
The last of this group of healthcare mammoths is UnitedHealth Group (United Health). Although United Health is still a baby compared with the rest of the group, it has been around as a public company for over 35 years, and can boast the largest employee base of 330,000. It offers a little more than a 22% average annual increase in dividend, for a total of 68% over three years and a current annual dividend of $5.
The company's stock price is down 4% from its recent 52-week high, at a price of $408. And its P/E ratio is at a healthcare sector average of 23, lower than J&J's 29 and AbbVie's 37. With an average one-year target price of $435, the expectation is that it may have another 6% or so in room to run.
The company is calling for an increased earnings outlook for 2021, primarily driven by higher COVID-19 treatment and testing, as well as higher than expected elective care. In 2020, elective care procedures across the U.S. declined due to the pandemic. Based on the first-quarter numbers, the company is now seeing that demand come back. The first quarter also saw revenue increase by 9% and earnings by 35% on a year-over-year basis.
Don't call it a comeback
These three dividend mammoths have had their payouts firmly in place for quite some time. Now might be a good time for investors to give them a spot in their portfolios as well. You probably won't go wrong with adding any of these three stocks. But if it's stability and dividend increases you're looking for, from a stock price that off a bit more from its 52-week high, and a good 2021 outlook, you might like UnitedHealth as a top option.