Building passive income from your investments can be incredibly rewarding. There's nothing sweeter than regularly getting a cash infusion from your shares of flourishing dividend payers. What's more, businesses that pay dividends are often among the most stable in the market as they frequently have strongly reliable cash flows that they use to return ever-greater amounts of capital to their shareholders.
Today I'll be discussing two such dividend stocks in the healthcare space, both of which provide things that their intended customers simply can't do without.
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1. Viatris
Drug manufacturer Viatris (VTRS) produces well-known medicines like Lipitor, Viagra, and EpiPens. But the company itself is still quite new, having come into being in late 2020 when Pfizer spun off its generics manufacturing division to combine it with Mylan, also a generics drugmaker. The new company continues the mission of commercializing more generics -- and those efforts have paid off. For the trailing 12 months, the company saw sales of $17.2 billion and earnings before interest, taxes, depreciation, and amortization (EBITDA) of $5.5 billion.
Because the level of demand for individual generic drugs doesn't change that much over time, Viatris could turn out to be a reliable, long-term holding for investors. Moreover, rewarding shareholders with dividends and share repurchases is something that management considers to be a priority. With its first year of paying a dividend in the rearview mirror, the company opted in early January to increase the payout by 9%, thereby making its forward yield 3.28%. If a similar increase is in store next year, it won't take long to start adding up for shareholders.
Still, investors should be aware that Viatris remains a fairly new company and hasn't yet had the chance to prove its long-term viability. That may be part of why its yield is on the higher side of the market's average dividend yield of around 1.27%. New entities like Viatris need to demonstrate their worth and stability before attracting dedicated investors.
Nonetheless, if you're willing to take a calculated risk that its margin will continue to trend upward like it has for the past year, it could be a great source of income for a long time.
2. Alexandria Real Estate
Alexandria Real Estate Equities (ARE 2.49%) isn't a drugmaker or biotech firm, but it's a landlord for many businesses that are.
As a real estate investment trust (REIT) specializing in biopharmaceutical laboratory space, Alexandria builds and then rents out the research and development (R&D) facilities that biopharma companies need to carry out their work. You've doubtlessly heard of a few of Alexandria's high-profile tenants, such as Johnson & Johnson, Pfizer, and Moderna, all of which used the company's facilities while working on their coronavirus vaccines.
With over $2 billion in trailing revenue, just over half is from publicly traded large-cap biopharma companies much like the three I just mentioned, which means that investors can count on its income to be highly reliable. In addition, the weighted average lease length of its tenants is 7.4 years, which means that Alexandria doesn't need to search for new customers very frequently.
But what about its value proposition for investors seeking dividend income? Currently, its dividend has a forward yield of 2.34%. Over the past five years, that payout has grown by 38.55%, and there's probably more to come. That's because in the same period of time, Alexandria's quarterly free cash flow (FCF) has popped by 186.9%. So more capital is likely to be earmarked for distribution to shareholders.
Overall, Alexandria is an appealing option for dividend growth investors. While it's unlikely to make you rich, a $10,000 investment in the company today could yield income of around $234 in the first year. As the payout grows, so would your return. Plus, there's always the prospect of your shares appreciating in price over time. All in all, it makes for a sensible investment.
