If you want to play it safe in 2022, it's not a bad idea to buy a healthcare company. Pharmaceutical stocks will likely do well, regardless of what the economy is doing. Healthcare is a necessity, so there probably won't be a slump here.
And if you want to be really safe, you might look to healthcare companies that are paying out dividends. Here are three stocks that should do you right in the new year: Pfizer (PFE), Merck (MRK), and Abbott Labs (ABT).
333 quarters and counting
Patrick Bafuma (Pfizer): In 2021, Pfizer not only provided us with a SARS-CoV-2 vaccine in record time, but with outsize shareholder gains, too. The company boasts over 55% year-to-date gains, more than double the S&P 500's 27% thus far. That does not even include the pharma's 2.7% dividend yield.
And the behemoth's dividend is about as safe as it gets. Its 2022 first-quarter payout will be the 333rd consecutive quarterly dividend paid. Going into the fourth quarter, it had roughly $30 billion on hand -- and that's after already paying out $6.5 billion in dividends through the first three quarters of the year. Suffice to say, the dividend is safe for the foreseeable future.
If you think Pfizer's recent buying spree of Arena Pharmaceuticals and Trillium Therapeutics will halt its payouts, think again. Those two purchases cost Pfizer roughly $9 billion combined -- or about a quarter of expected its COVID-19 vaccine revenue for 2021. And its coronavirus pill is shaping up to exceed $10 billion a year in sales in 2022. Put it all together and not only is the dividend safe, but the shopping spree to keep the pipeline full is likely to continue as well.
A top income play for 2022
George Budwell (Merck): Less than two full months ago, Merck's oral coronavirus pill molnupiravir was thought to be worth upward of $7 billion a year in sales. After the drug's efficacy dramatically slipped in the final analysis, however, Wall Street quickly lost its enthusiasm for molnupiravir. As proof, Merck's market cap dropped by as much as $40 billion in the immediate aftermath of molnupiravir's updated efficacy data last month. While the pharma giant's novel coronavirus pill may no longer be a notable growth driver over the next two to three years as originally believed by shareholders, this singular drug is also far from the only reason to consider owning this top pharma stock right now.
After all, Merck's stock is arguably better viewed as a top income play rather than an elite growth vehicle, for a variety of reasons. Underscoring this point, the drugmaker's stock offers a handsome 3.7% yield on an annualized basis at current levels. That's one of the highest yields among major drug manufacturers at the moment. Merck's 12-month trailing payout ratio of 78% also implies that its above-average yield should be sustainable over the long term. Keeping with this theme, Merck's top franchises such as the oncology drug Keytruda, the HPV vaccine Gardasil, and its animal health unit, are all expected to post healthy levels of revenue growth in 2022 and beyond. The company's rock-solid free cash flows should thus support additional increases to the dividend in the near future.
All told, Merck is one of the best COVID stocks to own for passive income purposes.
COVID diagnostics plus a top diabetes play
Taylor Carmichael (Abbott Labs): Abbott is a nice, safe place to park your money. The drugmaker has a thriving COVID-19 diagnostics business that brought in almost $2 billion in the most recent quarter. And the company added 200,000 new FreeStyle Libre customers in the quarter. That makes 3.5 million diabetes patients around the world who are using Abbott's device to measure glucose levels.
Perhaps more importantly from a shareholder perspective, the company has raised its dividend for 50 years in a row, joining the exclusive dividend king club next year. And while Pfizer's dividend streak is impressive, Abbott actually beats it by a decade. This healthcare giant has paid a dividend 392 quarters in a row, a record that dates back to 1924.
Shareholders were also rewarded with stock from the AbbVie spinoff in 2013. With its focus on diagnostics and medical devices, Abbott remains one of the premier healthcare companies in the world. Investors worried about the economy in the new year should consider investing in this solid winner.