It's a scary time to be an investor, with the markets languishing and the threat of additional interest rate hikes next year weighing on stock prices. In this environment, it is important to control risk and one way to do that is by investing in quality healthcare companies with consistent, sustainable dividends.
Cardinal Health (CAH 0.16%) and AbbVie (ABBV -1.03%) offer dependable revenue growth with above-average dividends. These are the type of value companies investors turn to in tough times and they are likely to be among the first stocks to bounce back when the economy improves.
Cardinal is in the middle of everything
Cardinal Health's stock is up more than 60% over the past year. The drug and laboratory products distributor operates in two segments: pharmaceutical and medical. In the first quarter of fiscal 2023, it reported revenue of $49.6 billion, up 13% year over year, with income from operations of $137 million, down 67% over the same period in 2022, and earnings per share (EPS) of $0.40, down 57% year over year. The pharmaceutical segment is the one fueling growth, bringing in $46 billion of the company's first-quarter revenue, up 15% year over year. Medical saw revenue fall by 9% to $3.8 billion, with lower product and distribution sales.
The company's bottom line was hurt by supply chain issues and inflation because many of its contracts are long-term, limiting how fast the company can raise prices. New CEO Jason Hollar, however, is focusing on raising prices.
Cardinal is also looking at improving its medical segment sales. In November, the company, in a collaborative effort with Medically Home, launched a supply chain network and last-mile fulfillment solution Velocare. The point is to deliver hospital-level care at home for patients, bringing critical products and services to patients within an hour or two, saving money, and bringing more efficient care.
What I like about Cardinal is it doesn't have the expenses that pharmaceutical and medical device makers do in developing and making drugs and medical devices. It carves out its own profits from being the middleman. With inflation rising so fast this past year that put a short-term strain on the company, but it is built for long-term success with less risk than most healthcare companies.
Cardinal also offers an above-average quarterly dividend, which it raised by 1% last year to $0.4957 per share, the 36th consecutive year the company has increased its dividend. Its current yield is roughly 2.5%.
CAH Revenue (Annual) data by YCharts
AbbVie is prepared for its next phase
AbbVie has proven its doubters wrong for so long that they're even joining the shareholder ranks. Over the past year, the pharmaceutical stock is up more than 20%.
The looming patent cliff for Humira has made AbbVie a better company. The immunology blockbuster's sales will likely decline beginning in 2023 when it faces biosimilar competition in the U.S. for the first time. CEO Richard Gonzalez said he expects sales for Humira to drop 45% by 2024. The anti-tumor necrosis factor therapy has long been the standard of care for inflammatory diseases such as rheumatoid arthritis and Crohn's disease.
However, AbbVie already has two drugs that are lining up to replace the $20 billion in revenue that Humira earned last year: Skyrizi and Rinvoq. Just as Humira did, the two biologics are steadily adding approvals. Skyrizi gained its third Food and Drug Administration (FDA) approval this summer, to treat moderate to severe Crohn's disease, and it also picked up that approval this fall in Europe. Rinvoq already has approvals to treat active ankylosing spondylitis (a type of arthritis along the spine), Crohn's disease, ulcerative colitis, atopic dermatitis, rheumatoid arthritis, and psoriatic arthritis.
AbbVie said last year that the two drugs should deliver $15 billion in annual revenue by 2025. They're well on the way as they combined to bring in $5.3 billion in the first nine months of this year, with Skyrizi's sales up 75.6% year over year and Rinvoq's up 54.5% in that same period.
Thanks in no small part to a big research and development budget fueled by Humira profits, the company has a huge pipeline, particularly in oncology, with 26 molecules currently in trials. Another drug with huge potential is Vraylar, which earned its fourth indication this month by the FDA, as an add-on therapy for major depressive disorder. An estimated 21 million adults in the United States had at least one major depressive episode in 2020, according to data from the Substance Abuse and Mental Health Services Administration. The drug was already approved to treat schizophrenia, manic or mixed episodes from bipolar I disorder, and depressive episodes associated with bipolar I disorder.
The company is raising its dividend by 5% next quarter to $1.48 per share, offering a yield of around 3.7%, more than double the average S&P 500 dividend of 1.82%. AbbVie, because it spent years as part of Abbott Laboratories, is a Dividend King that is on schedule to raise its dividend for the 51st straight year. The one downside to AbbVie stock is the pain of knowing you could have gotten a lower share price a few months ago, but that annoyance ends when you consider the company's potential for growth.
