Dividend stocks can practically be a retiree's best friend. At least, the right ones can be. Three Motley Fool contributors were asked to identify healthcare dividend stocks they think retirees should absolutely love now. Here's why they picked AbbVie (ABBV -4.58%), Gilead Sciences (GILD 0.23%), and Pfizer (PFE 0.55%).
A reliable passive income machine
Prosper Junior Bakiny (AbbVie): Retirees are usually attracted to steady dividend payers. AbbVie fits that description quite well. With 51 years of consecutive payout increases under its belt, the drugmaker has earned a place in the select group of companies known as the Dividend Kings. In the past decade alone, its management has raised its dividends by an impressive 270%.
The company has been able to sustain these increases thanks to its solid underlying business. AbbVie bears might point out that its key asset through this period was Humira, a blockbuster immunology medicine that has now lost patent exclusivity and sales of which are declining. The company expects its top line to sink this year and next as a result.
However, sales of other drugs in AbbVie's portfolio should eventually fill the gap left by Humira. Skyrizi and Rinvoq, two newer immunology medicines developed to address the conditions treated by Humira, should exceed its peak annual sales between them by 2027, according to management. AbbVie's revenue will have returned to growth by then, and considering the rest of the company's pipeline, that growth should keep going long after.
With several dozen programs in the works, the drugmaker will likely unearth another gem or two that should boost its financial results over the long run. That's why the Humira patent cliff shouldn't be a deal breaker for investors.
One more thing to consider for retirees: AbbVie's business will never go out of style. There will always be a need for better medicines, and as a leading drugmaker with a proven ability to innovate, the future looks bright for the company. AbbVie's solid dividend growth prospects and reliable operations make it a great stock pick for retirees.
A low-volatility dividend stock with a high yield
David Jagielski (Gilead Sciences): Three things make Gilead Sciences an ideal investment option for retirees. There's its high dividend, the stability that the stock offers, and its business model -- Gilead focuses on areas where there are ongoing needs for treatment.
Let's start with the dividend. At its current share price, the payout yields 3.8% -- more than double the S&P 500's average of 1.5%. On a small position, that may not mean a whole lot of additional income. But if you've got $30,000 you can afford to invest in the stock in retirement, that difference can add up. Annually, you could collect $1,140 in dividends. That's close to $700 more in dividends than you'd earn each year if you invested the same amount in an S&P index fund.
Another big reason to love the stock is its stability. Gilead's beta value averages 0.4. The lower a stock's beta is, the less it moves in unison with the markets. Although Gilead's returns often lag far behind the S&P 500, retirees will likely value the stock for its predictability and more gradual movements.
Finally, there's the business itself. Gilead is a leader in HIV treatments, which are in much need. In 2022, HIV product sales rose by 5% to $17.2 billion and accounted for 63% of the company's top line. Gilead has also been expanding into oncology. Its sales in that segment soared by 71% in 2022, driven in large part by the strength of Trodelvy, one of the company's most promising drugs.
Overall, Gilead is a good, relatively safe dividend stock to own. I think it could be suitable for any retiree's portfolio.
Obvious and not-so-obvious advantages
Keith Speights (Pfizer): It's no secret that Pfizer offers a great dividend. Its yield at the current share price tops 4.5%, and the giant drugmaker generates ample cash flow to keep the dividends flowing and growing.
Some investors could be concerned about Pfizer's overall prospects, though. After all, sales for the company's COVID products are tanking. Pfizer also faces a massive patent cliff over the next few years. Unsurprisingly, its stock price has fallen significantly.
Retirees should still find a lot to like about this big pharma company. Its valuation already reflects a gloomy forecast with shares trading at a forward earnings multiple of 11. More importantly, Pfizer's actual outlook could be a lot better than many think.
Pfizer expects sales for its COVID products to begin rebounding next year. The potential launch of a combination COVID/flu vaccine in 2025 could especially provide a spark.
While a patent cliff is definitely coming, Pfizer also has plenty of new products on the way. It projects that product launches through the first half of 2024 will more than offset any lost sales from patent expirations.
The pharma giant's wheeling and dealing should pay off nicely, too. Management anticipates that non-COVID revenue from business development deals will add another $25 billion in annual revenues by 2030.
The bottom line is that Pfizer should deliver compound annual sales growth of 6% through the decade. Its growth could be even higher if some of its other pipeline programs achieve success. That kind of growth combined with a juicy dividend and a bargain valuation adds up to a stock that retirees should love.
