Top dividend stocks are capable of delivering above-average returns returns in any type of market. That's why these stocks frequently sport premium valuations and high levels of institutional ownership.
Which dividend stocks are no-brainer buys for retail investors right now? AstraZeneca (AZN 1.14%), Merck (MRK 0.02%), and Medtronic (MDT 0.65%) are three elite income stocks that have recession-proof businesses, strong growth prospects, and ample free cash flows. Here's a brief overview of why these blue-chip healthcare stocks are worth buying right now.
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1. AstraZeneca
AstraZeneca is a low-key juggernaut. Thanks to its pivot to cancer drugs, Astra's top line, cash-flow generation, and core earnings per share all skyrocketed during the first nine months of 2022.
Astra's stellar financial performance is great news for income investors for two reasons. First, Astra has a progressive dividend policy, which essentially ties the company's payout to earnings per share. Its steadily rising bottom line, in turn, should ensure the company's highly coveted dividend program is sustainable for the long term.
Second, the drugmaker has been aggressive on the deal-making front of late, with the company tacking on both the rare disease giant Alexion Pharmaceuticals and the cardiorenal care company CinCor Pharma within the past 24 months. Astra's rising free cash flows ought to provide plenty of financial cushion for these kinds of value-creating business development activities, as well as its twice-yearly dividend distributions.
What can investors expect from Astra over the balance of the decade? Astra is poised to generate double-digit top-line growth over the period from 2025 to 2030. Wall Street thinks this growth trend will bring the company's dividend payout ratio in line with industry norms (approximately 50%), and possibly turn it into one of the fastest-growing big pharma companies on the planet.
All told, Astra's supercharged sales growth makes this stock a no-brainer for income and growth investors alike.
2. Merck
Merck is the epitome of "safe" as an income vehicle. The company currently offers shareholders a 2.75% annualized yield, which is slightly below average for a big pharma stock. However, Merck's 12-month trailing payout ratio of 45% is also below industry norms, implying that its modest dividend is sustainable for the long haul.
Why is Merck a no-brainer stock? Merck has built out a highly diversified revenue stream from animal health, cancer care, cardiometabolic, infectious disease, and vaccine products. That said, the drugmaker's undisputed growth driver is the megablockbuster cancer immunotherapy Keytruda.
Thanks to its first-mover advantage in high-value indications such as non-small cell lung cancer, Keytruda is forecast to generate double-digit sales growth until it loses patent protection in 2028. In addition, Merck's vaccine business and animal healthcare unit are expected to deliver solid financial results for the remainder of the decade. All told, the drugmaker is at little to no risk of experiencing a major drop-off in annual revenue within the next five years.
Merck does have a wild card in play, however. The company is widely believed to be on the hunt for a midsize acquisition to shore up its long-term (post 2028) growth trajectory. Although a deal has yet to materialize, Merck will probably deploy a significant amount of capital on a bolt-on acquisition within the next 24 months.
Fortunately, Merck's ample free cash flows should be sufficient to support both a midsize transaction, along with its top notch dividend program. This big pharma stock is thus a rock solid choice for growth, value, and dividend investors.
3. Medtronic
Medtronic is a pure-play medical device company. The company offers shareholders an above-average dividend yield of 3.29%, a track record of 45 consecutive years of dividend increases, and management's commitment to deploying at least 50% of free cash flows to shareholder rewards, with a heavy emphasis on dividends. What's more, Medtronic owns an outsize portion of several high-value medtech markets such as cardiovascular care, medical surgery, and neuromodulators for chronic pain.
Medtronic is far more than a reliable income stock, however. The company's ongoing restructuring efforts promise to slash operating costs, generate modest levels of top-line growth through investments in underserved markets like atrial fibrillation and mitral valve disease, and expand its footprint in high-growth areas likes diabetes.
All told, the company's attractive mix of a wide economic moat, long-held tradition of regular dividend increases, and strong long-term fiscal outlook make this medical device stock a top buy for any type of investor.
