The healthcare industry is crucial to the world because its products and services improve patients' quality of life. An expanding global population, increased global economic output, and the essential nature of healthcare means that the industry should continue to thrive in the decades ahead.
Here are two stocks in various areas of healthcare that appear poised to make shareholders richer over the long haul.
1. CVS Health
The first healthcare stock that investors should consider buying to help them grow wealthier over time is health insurer and pharmacy chain CVS Health (CVS -0.30%). With a $138 billion market capitalization, it is the second-largest health insurer on the planet behind UnitedHealth Group.
Chronic medical conditions are becoming increasingly common, and treatment costs are rising. This is why the market research firm Fortune Business Insights anticipates the global health insurance market will grow at a 5.5% annual rate from $2.1 trillion in 2021 to over $3 trillion by 2028.
Thus, Aetna's already massive base of 39 million customers should increase in the years ahead. That also explains why analysts believe that CVS Health's non-GAAP (adjusted) diluted earnings per share (EPS) will compound at 6% annually through the next five years.
Based on the midpoint of CVS Health's earnings guidance for 2022, the stock's dividend payout ratio will be quite sustainable at 26.8%. This leaves room for the payout to grow slightly ahead of earnings in the years to come. CVS Health's potential for high-single-digit annual dividend growth and its 2.1% dividend yield are an attractive combo of growth prospects and yield.
Best of all, investors can snatch up shares of the stock at a forward price-to-earnings (P/E) ratio of 11.6. This is significantly cheaper than the healthcare plan industry average of 16.6, which makes it a great stock for value investors.
Due to Merck's size and scale, you'd expect the stock to boast a robust portfolio of commercialized drugs and a pipeline that's just as deep. And you'd be correct.
Led by the cancer drug Keytruda and human papilloma virus vaccine Gardasil, Merck possesses six blockbuster products and a quickly growing animal health segment. This led the company's year-over-year revenue 17.3% higher to $48.7 billion in 2021. Merck's adjusted diluted EPS also soared 32.9% higher to $6.02 in 2021.
The company also has 75 programs in phase 2 clinical trials and 28 programs in phase 3 clinical trials. That's why analysts are predicting that Merck will generate 9% annual earnings growth over the next five years.
And with a promising outlook for the global pharmaceutical industry, Merck has more than simply strong company fundamentals. An aging global population and new drug launches are two reasons why the global pharmaceutical industry is expected to grow from just under $1.3 trillion in 2020 to $1.6 trillion by 2025.
Merck also offers investors a market-crushing 3.2% dividend yield, which is more than double the 1.4% yield of the S&P 500 index. And since the stock's dividend payout ratio will be just 38.4% in 2022, the dividend should grow about as fast as earnings in the foreseeable future. This should allow for high-single-digit annual dividend growth going forward.
The cherry on top for investors is that shares of Merck can be scooped up at a forward P/E ratio of 12.1, which is only slightly above the general drug manufacturer industry average of 11.6. Its quality and above-average growth potential make Merck a dirt cheap dividend stock to buy.