As a dividend investor, it pays to pick stocks operating in evergreen industries. The demand for goods and/or services in these industries tends to remain strong over decades and in all types of economic environments.
In the healthcare industry, there is no shortage of sectors that tap into evergreen business opportunities. That's because routine access to healthcare is and will always be essential to promoting higher quality of life for patients.
Let's take a closer look at two companies that are leaders in this sector and could be investments worth considering for dividend investors.
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1. Abbott Laboratories: A balanced healthcare play
Investors seeking a company with a multi-faceted presence within healthcare would do well to consider Abbott Laboratories (ABT 0.63%). Across its four business segments, the company posted $43.7 billion in sales during 2022. This was led by the $16.6 billion that came from its diagnostics segment (like its BinaxNOW COVID-19 rapid test). Another $14.7 billion was derived from the medical devices segment (like FreeStyle Libre continuous glucose monitors). The nutrition segment, with products like Similac infant formula, chipped in $7.5 billion in revenue. And the established pharmaceuticals segment that sells generic medicines in emerging markets contributed the remaining $4.9 billion in revenue in 2022.
Thanks to a broad-based sales mix, analysts expect the company's non-GAAP (adjusted) diluted earnings per share (EPS) to rise by 27.5% from 2023 to $5.61 in 2026. Aside from this healthy growth forecast, Abbott's 1.9% dividend yield is moderately greater than the 1.5% yield of the S&P 500 index. And with the dividend payout ratio poised to register at around 46% in 2023, the company should have no trouble extending its 51-year dividend growth streak in the years ahead.
To top it off, Abbott's valuation is cheap when you consider its reputation as a highly reliable dividend grower: The stock's forward price-to-earnings (P/E) ratio of 22.9 is below the medical devices industry peer average valuation multiple of 24.4. Analysts have an average 12-month share price target of $125 on Abbott. Given the current share price of around $105, Abbott looks like an intelligent buy for dividend growth investors.
2. Humana: A bet on rising health insurance demand
As people age, they tend to require healthcare services more frequently. Global demographic trends point to an expanding senior citizen population, suggesting significant growth potential in the health insurance industry. Market research firm Global Market Insights predicts the global health insurance market will compound by 5.5% annually for the next decade, going from $3 trillion in 2022 to surpass $5 trillion by 2032.
With its more than 22 million medical, dental, and vision plan members, analysts project that Humana (HUM -1.77%) will haul in over $103 billion in revenue in 2023. This could position the company as one of the biggest winners from the vigorous industry growth prospects. It also goes some way to explain why analysts predict that Humana's adjusted diluted EPS will increase by an average of 13.6% annually over the next five years. Up against the healthcare plans peer consensus of 11.7%, this is a solid growth outlook.
At a glance, Humana's 0.7% starting dividend yield seems minuscule. But with its above-average growth prospects and a dividend payout ratio positioned to be approximately 12% in 2023, the company's payout growth profile could balance out the lower starting income.
Humana isn't cheap in the traditional sense: Its forward P/E ratio of 15.5 is higher than the healthcare plans industry average forward P/E ratio of 13.9. But it is still a decent value for its superior growth potential. That is probably why analysts have assigned an average 12-month share price target of $583, which would provide a robust upside from the current $494 share price.
