It isn't just your imagination: Day-to-day expenses are climbing. In February, the Consumer Price Index was up 6% over the previous year.
You don't need to be an economist to understand inflation's effect on income-generating stock portfolios. If prices consistently rise faster than the dividends you receive, your passive income stream could get squeezed down to a tiny trickle by the time you retire.
If you're worried about how inflation could affect your future stream of passive income, consider these healthcare stocks.
| Company | Dividend Yield | Dividend Growth (5 Years) | Dividend Growth (10 Years) |
|---|---|---|---|
| CVS Health | 3.2% | 21% | 169% |
| Abbott Laboratories | 2.1% | 82% | 264% |
| UnitedHealth Group | 1.4% | 83% | 489% |
Data source: Yahoo! Finance.
All three have a history of meeting and raising their payouts much faster than inflation. Read on to see why there's a good chance they can keep cranking their dividends higher in the years ahead.
CVS Health
You're probably familiar with CVS Health's (CVS 1.36%) enormous chain of retail pharmacies, but there's a lot more to this business. In 2018, it pulled off a $78 billion merger with health insurance benefits provider Aetna.
Aetna wasn't CVS Health's first foray into benefits management, either. The company's pharmacy benefits management business is America's largest, with 110 million plan members.
CVS Health probably doesn't show up when you screen for dividend growth stocks because it froze its payout for a few years to help pay down debt from the Aetna merger. Clearly, the merger has been successful. The company has raised its dividend commitment by 21% since Dec. 10, 2021.
Americans spent $4.3 trillion on healthcare in 2021. While high prescription drug prices get a lot of attention, CVS Health understands that spending on physician and clinical services is more than double prescription drug spending.
To help retain a larger portion of the monthly premiums it collects from around 35 million people, it's becoming a leading provider of the health insurance benefits it's paid to manage. The recent acquisition of Signify Health will add 10,000 clinicians to its employee roster. With the ability to provide more of the benefits it is also paid to manage, shareholders can look forward to big dividend raises for many years.
UnitedHealth Group
UnitedHealth Group (UNH -0.10%) is America's largest manager of health insurance benefits. It receives premiums from around 48 million Americans each month and is improving at managing healthcare expenses by pursuing a vertical integration plan very similar to CVS Health.
UnitedHealth Group's Optum Health segment is one of the country's largest employers of health practitioners. Around 70,000 physicians working in more than 2,200 locations are currently employed by or aligned with Optum Health.
Despite rapidly raising its payout, the company needed just 25.6% of the free cash flow it generated over the past year to meet its dividend obligation. There are no guarantees that UnitedHealth will be able to raise its payout another 489% in the coming decade, but we can reasonably expect some big bumps in the right direction over the next few years.
Abbott Laboratories
If health insurance benefits managers aren't your style, consider Abbott Laboratories (ABT -0.02%). This healthcare conglomerate has raised its dividend payout for 60 consecutive years with help from increasing sales of tangible products and diagnostics.
Abbott's nutrition segment gained a lot of attention last year after the temporary closure of a single manufacturing site led to a national baby formula shortage. Diagnostics sales declined in the fourth quarter due to rapidly receding demand for COVID tests, too. Despite unprecedented challenges for two of its operating segments, annual revenue climbed 6.4% last year once adjusted for the negative effects of a stronger U.S. dollar.
Abbott's raised its payout at a pace that crushes inflation, with help from a medical device segment that keeps launching successful new products. Last May, the U.S. Food and Drug Administration (FDA) cleared FreeStyle Libre 3, the company's next-generation constant blood-glucose monitor. In January, the FDA approved Abbott's new replacement heart valve system.
With plenty of new growth drivers to push profits in the right direction, patient investors can look forward to many more years of rapidly growing dividends from this stock.
