Income investors love Dividend Aristocrats (companies that have raised their payouts annually for 25 or more years) or even Dividend Kings (those with streaks of at least 50 years). It takes a strong company to build up such a long record of payout growth, and those dividends are extremely reliable.
However, often the biggest payout increases aren't delivered by Dividend Aristocrats or Kings, but instead by companies that have experienced rapid improvements in their results. Healthcare companies Cigna (CI 0.63%), Steris (STE -0.62%), and Bristol Myers Squibb (BMY -8.51%) fit that description. All combine recent revenue or earnings growth with sharply rising dividends.
Cigna is a vertically integrated growth monster
Cigna offers health insurance, pharmacy services, and benefits management in 30 countries, including the United States. It operates in three segments: Cigna Healthcare for insurance, Evernorth benefits management, and its international markets segment. The company's stock price is up more than 25% this year, yet only trades at about 17 times earnings.
In the second quarter, the company reported $45.5 billion in revenue, up 5% year over year. Net income totaled $1.6 billion ($4.90 per share), up from $1.5 billion ($4.25 per share) in the same period last year. The company says that its long-term goals include boosting its annual earnings per share by 10% to 13% while paying a "meaningful dividend."
In fact, the company raised its quarterly dividend by 12% this year to $1.12 a share, but that's only part of the story. As recently as 2020, its quarterly payout was just $0.04. The current dividend yields a respectable 1.57%, and it's a safe bet the company can afford to keep raising it as its payout ratio is only 16%.
What I like about Cigna's evolving business is that it gives consumers a one-stop healthcare shopping experience, which is helping it to keep growing its customer base. At the same time, in an environment of rising interest rates, Cigna benefits from the float of those higher rates as it invests the insurance premiums it collects.
Bristol Myers: future Dividend Aristocrat at a bargain price
Pharmaceutical giant Bristol Myers Squibb focuses on oncology, hematology, immunology, and cardiovascular diseases. In the second quarter, revenue rose 2% year over year to $11.9 billion, and earnings per share surged by 40% to $0.66.
However, some investors are concerned that a number of its top drugs -- such as Eliquis, Opdivo, Pomalyst, Revlimid, and Yervoy -- will soon lose patent protection. Yet, the company has other drug candidates on the way that should allow it to absorb the inevitable declines in those legacy drugs' sales while continuing to grow its overall revenue.
Bristol Myers has a strong pipeline with 50-plus compounds in development across more than 40 disease areas, and has gotten 10 new drug approvals from the Food and Drug Administration this year, including one in September for Sotyktu (deucravacitinib) to treat moderate to severe plaque psoriasis. It also has shown strong Phase 3 trial data for Opdivo as a monotherapy to treat completely resected stage IIB/C melanoma.
Then there are the recent additions to its drug portfolio, led by anemia therapy Reblozyl, relapsed or refractory multiple myeloma drug Abcema, and large B-cell lymphoma therapy Breyanzi. That group posted revenue of $482 million in the second quarter, up 114% year over year.
Bristol Myers also been tending to its dividend, having boosted it annually for 20 consecutive years -- including a 10.2% bump this year to $0.54 per quarter -- putting it on course to become a Dividend Aristocrat.
At the current share price, Bristol Myers' dividend yields an above-average 3.15%, and given its payout ratio of 32%, there's plenty of flexibility for management to keep increasing that payout. The stock is up more than 11% this year with potential for more from here.
Steris: providing steady dividend growth
Steris provides products and services to healthcare providers to prevent infection -- everything from surgical instruments to endoscope repair.
Its shares are down more than 31% this year thanks to supply chain issues as well as legal concerns. Steris' stock was downgraded by analysts from buy to hold because it is facing lawsuits regarding emissions of ethylene oxide (a chemical used to sterilize medical instruments). While the company's lawsuit exposure has so far been lower than that of some of its competitors, the uncertainty of future class action lawsuits and possible need to hold cash for the legal matters are among the analysts' concerns.
Financially, the company is positioned to keep growing its revenue and its dividend -- which it has raised for 17 consecutive years, including a boost of 9% this year to $0.47 per share. Over the last decade, the company has increased its quarterly payouts by 147%. Steris' 46% payout ratio is easily sustainable considering the company's cash flows.
Sales fell earlier during the COVID-19 pandemic, but they are bouncing back nicely. In the first quarter of its fiscal 2023, Steris reported revenue of $1.2 billion, up 19% year over year. At the bottom line, the company staged a huge turnaround, posting income of $111.3 million, or $1.10 per share, versus a net loss of $21.8 million, or $0.24 per share, in the first quarter of its fiscal 2022.
No doubt, the legal issues can't be ignored, but the company's financial results should be encouraging to investors.
