Healthcare is a massive industry; worldwide healthcare spending exceeded $8 trillion yearly in 2020 and 2021. Such an essential and lucrative field is fertile ground for great stocks.
You don't need to swing for a home run; hitting consistent base hits can get the job done. In other words, building wealth can be as easy as buying these five quality healthcare stocks and holding them long-term.
1. The dividend king of healthcare stocks
Johnson & Johnson (JNJ 0.32%) is arguably the top blue chip stock in the healthcare industry. The company's a massive conglomerate that makes consumer products, pharmaceutical drugs, and medical devices, generating more than $94 billion in annual sales worldwide.
Johnson & Johnson's top and bottom lines have steadily grown larger for decades. The company's a Dividend King, famous for a resilient dividend that it's paid and raised for 60 consecutive years. It's one of two companies with an AAA credit rating from S&P, a distinction the U.S. government cannot even claim. The company will soon spin off its consumer products business, a potential shareholder bonus.
2. An insurance giant
UnitedHealth Group (UNH 0.20%) is one of the world's largest healthcare companies. It's a two-headed business consisting of UnitedHealthcare, which offers health insurance, and Optum, a healthcare solutions segment that provides pharmacy, services, and care access to patients. The company generated a trailing-12-months revenue of a whopping $295 billion.
The company's grown its revenue by an annual average of 11% and earnings-per-share by 14% over the past decade. Healthcare spending typically increases over time, and UnitedHealth should keep benefiting. The company's also becoming a solid dividend stock with 13 consecutive raises and enough share repurchases to lower the share count by 9% over the past 10 years.
3. A pharmaceutical leader
AbbVie (ABBV 0.52%) was spun off from the fourth stock on this list in 2013 and has become one of the world's largest pharmaceutical companies. It sells a variety of drugs and owns the Botox brand, but it's most famous for Humira, the world's second best-selling drug. The company generated sales totaling more than $56 billion over the past 12 months.
Pharmaceutical companies protect their products with patents, but they eventually expire, and competitors flood the market with cheaper generic versions. Humira's protection expires next year, but AbbVie's made acquisitions and developed its pipeline to drive long-term growth. It's also an outstanding dividend stock that offers a 3.5% dividend yield.
4. The reliable conglomerate
Abbott Laboratories (ABT 0.30%) is a healthcare conglomerate that sells consumer products, medical devices, and diagnostic tools, and markets generic drugs outside the United States. After spinning off AbbVie in 2013, Abbott's built a business around cardiovascular conditions and diabetes. In all, Abbott reported $44 billion in sales over the last 12 months.
Abbott's business has thrived after restructuring; revenue has grown by an average of 15% annually over the past five years, while EPS has increased by 37% per year. Abbott's annual free cash flow has grown to $8 billion, which helped fund a 1.7% dividend and share repurchases that total $4 billion over the past year.
5. The COVID-19 vaccine company
Pfizer (PFE 1.28%) is up there with AbbVie as one of the world's pharmaceutical giants. Pfizer's one of the industry's oldest players, evolving over the years through acquisitions and mergers. You can see below how the business has surged to more than $92 billion in revenue for the last four quarters, largely thanks to its development of a COVID-19 vaccine. The vaccine accounted for 65% of revenue in the company's 2022 first quarter.
Pfizer's surge in growth probably won't last forever; demand could eventually fall for the COVID-19 vaccine if the virus goes away. However, you can see that the surge in growth has created billions in additional free cash flow for the company. Investors could see management turn that extra cash into shareholder value over the coming years through pipeline development, future acquisitions, or more share repurchases and dividends. Shareholders already get a dividend yielding 3%, making Pfizer a solid stock for passive income.