Technology is always evolving, but some things are constant. Unfortunately, it's almost certain that there will always be patients with chronic medical conditions requiring treatment from healthcare providers. The good news for these patients is that there are many pharmaceutical and medical device companies working to improve existing treatments.
But here's the bigger thing: Value creation is a win-win endeavor for all parties involved. When businesses produce goods and services that bring value to consumers, their owners are also better off. In that light, here are two quality healthcare stocks that could be attractive picks for dividend growth investors to buy this month and hold for decades.
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1. Bristol Myers Squibb: The total package for income and value investors
Bristol Myers Squibb (BMY 0.61%) is among the largest pharmaceutical companies in the world: The company's $145 billion market capitalization positions it as the eighth-largest drugmaker on the planet. Bristol Myers' latest product portfolio consists of three mega-blockbuster medicines (at least $5 billion in annual sales) and four blockbuster therapies (at least $1 billion in annual sales as of 2022).
Its second-best-selling drug called Revlimid (used to treat cancer) is already facing competition from generic drugs. And its top-selling and third-top-selling drugs (e.g., the blood thinner co-owned with Pfizer known as Eliquis and the cancer treatment named Opdivo) will experience patent expirations later this decade.
Fortunately, Bristol Myers is well prepared for these events to transpire. The company spent $9.5 billion in research and development in 2022 to advance its 50-plus compounds currently in clinical trials and to work toward putting more compounds in its pipeline. These drugs include the blood thinner drug candidate milvexian being co-developed with Johnson & Johnson, which could haul in peak annual sales of over $5 billion. Along with its immunology medicine, Sotyktu, Bristol Myers has the firepower to keep its business growing over time.
The company's 3.3% dividend yield is almost double the S&P 500 index's 1.7% yield. And with its dividend payout ratio poised to come in around 28% in 2023, Bristol Myers' dividend should have no problem steadily growing in the future.
Best of all, the stock's forward price-to-earnings (P/E) ratio of 8.5 is significantly lower than the drug manufacturer industry average forward P/E ratio of 14. This makes Bristol Myers an intriguing pick for investors seeking safe, market-beating income at a dirt cheap valuation.
2. Stryker: An innovative healthcare company
Serving more than 130 million patients each year with its products in over 75 countries around the world, Stryker (SYK -2.49%) is a major medical devices business. The company's products are used in numerous surgical applications, such as neurosurgery, joint replacement, spine, and endoscopy. Unsurprisingly, for a company of such size, Stryker held more than 12,000 patents in 2022.
With Stryker consistently spending around 8% of its total sales on research and development, this incredible innovation shouldn't come as a shock. That's precisely why analysts believe that the company's earnings will grow by a healthy clip of 9.2% annually over the next five years.
Investors seeking strong immediate income may not be won over by Stryker's 1% dividend yield. But investors with time to let the dividend compound should consider the stock for their portfolios. That's because, with the dividend payout ratio poised to clock in below 30% in 2023, double-digit annual dividend growth could persist for the foreseeable future.
And investors can pick up shares at a decent valuation: Stryker's forward P/E ratio of 25.9 is just under the medical devices industry average forward P/E ratio of 26.2. This arguably makes the stock tough to pass up for dividend growth investors seeking a reasonable valuation.
