There's a lot to love about dividend-paying stocks. Receiving cash payments every three months is one obvious attraction. It's also been proven that investors realize greater returns when they invest in dividend-paying stocks compared to businesses that aren't committed to sharing a portion of their profits with shareholders.
If you're looking for businesses that can make and raise dividend payments regardless of an uncooperative economic environment, it's hard to do better than the healthcare sector. Whether we're dealing with inflation or a recession, healthcare expenses are usually the last to get cut.
These three healthcare stocks have fallen from recent peaks and now offer above-average dividend yields. Read on to see why adding them to your portfolio now looks like a smart move.
CVS Health
While you're most likely familiar with CVS Health's (CVS -0.65%) chain of retail pharmacies, most don't realize that retail is a small part of this company's overall business. In 2018, CVS Health acquired Aetna, a health insurance benefits manager that collects monthly premiums from around 35 million people. Plus, it owns a pharmacy benefits management business which is America's largest with over 110 million plan members.
With over 1,100 walk-in medical clinics, CVS Health can provide many of the health insurance benefits that it's also paid to manage. This helped free cash flow explode 131% higher over the past five years.
Now that CVS Health has paid down a big portion of the debt load it took on to acquire Aetna, the company has started raising its dividend payout again. At recent prices, it offers an above-average 3.1% yield that could jump much higher in the years ahead. The company needed just 22% of the free cash flow it generated in 2022 to meet its dividend commitment. That leaves plenty of room to keep hiking its payout at a rapid pace.
Amgen
With roots that go back to 1980, Amgen (AMGN -1.33%) is America's most established biotechnology company. It's also one of the most shareholder-friendly drugmakers around with a dividend payout that's risen a whopping 353% over the past decade.
Some of Amgen's older products, such as Neulasta, are losing market share to new, lower-cost biosimilar versions. Luckily, the company's top-selling product, Enbrel, is protected by a thicket of patents. Despite launching way back in 1998, this anti-inflammation medication that generated over $4 billion in sales last year is unlikely to face biosimilar competition in the U.S. until 2029.
Last December, Amgen agreed to acquire Horizon Therapeutics for around $28 billion. With a complementary portfolio of treatments for rare diseases, Amgen thinks it can squeeze at least $500 million in cost synergies from the tie-up. The acquisition should be completed in the first half of the year, and management expects it to begin making positive contributions to earnings in 2024.
Amgen generated $8.8 billion in free cash flow last year and needed less than half of these profits to meet its dividend commitment. Right now it offers a 3.4% yield. There are no guarantees that the payout will quadruple again in the coming decade, but we can reasonably expect it to keep rising for at least the next several years.
Medical Properties Trust
Medical Properties Trust (MPW -0.22%) is a real estate investment trust (REIT) that owns 444 hospitals and other acute care facilities. Its buildings are spread across 31 U.S. states and nine other countries.
As a REIT, Medical Properties Trust can avoid paying income taxes by distributing at least 90% of profits to shareholders as a dividend. Despite distributing nearly every penny it earns, this REIT has been able to raise its payout nine times over the past decade.
At the moment, Medical Properties Trust offers a huge 14.3% dividend yield because investors are worried it might have to reduce the payout soon. That's because one of its major tenants, Prospect Medical, is having trouble making rent payments.
Assuming a worst-case scenario in which it receives zero rent from Prospect this year, Medical Properties Trust expects adjusted funds from operations, a proxy for earnings used to evaluate REITs, to reach $1.29 per share this year. That's more than enough to cover a dividend commitment set at $1.16 per share.
Prospect Medical is having a rough time, but demand for hospital services is almost always on the rise. That gives this REIT a good chance to quickly transition its troubled properties to tenants that can make ends meet.
