Industries with endless demand are great places to find dividend stocks. Healthcare might be the best example of this. No matter how much technology changes, the need to prevent and treat disease will never disappear. Sure, new treatments and solutions can change the game anytime, but the best players are the companies continually creating and innovating. How do you spot them? Well, you can look at those that have been doing it for a while already.
These blue chip stocks don't go on sale often, but you can circle them for the next time volatility hits Wall Street. Here are three fantastic healthcare stocks to target during the next market sell-off.
NYSE: ABBV
Key Data Points
1. AbbVie
Pharmaceutical company AbbVie (ABBV +1.16%) was formed when its sister company, Abbott Laboratories, spun it off in 2013. AbbVie's dividend roots go back decades before the split, and the company has raised its dividend every year since becoming its own corporation. Investors enjoyed robust years of dividend growth on the back of Humira, AbbVie's top drug. It spent years as a global top seller, and AbbVie's total sales doubled over the past decade.
But Humira recently lost patent exclusivity, and the arrival of generic competition is pressuring sales. Analysts expect revenue to decline to $53 billion this year, down from $58 billion in 2022. However, AbbVie's dividend payout ratio is only 41%, so investors shouldn't worry about a potential dividend cut. The company has successful and emerging products to help backfill lost Humira sales, but you can see that this process will effectively stunt earnings growth for the time being.
ABBV PE Ratio (Forward) data by YCharts
It's hard to justify a very high valuation without earnings growth, so the stock's price tag at 13 times earnings could come under pressure in a shaky market. Investors should monitor the stock and look for a dividend yield they can live with (it's currently 4%) until AbbVie shows signs of returning growth.
NYSE: SYK
Key Data Points
2. Stryker
Stryker (SYK 0.06%) has its roots in healthcare. The company sells various medical equipment, tools, supplies, and hospital services. It also has a segment that designs orthopedics for patients. Stryker has been at it for a long time. The company has paid and raised its dividend annually for 30 years running.
Those looking for massive dividends today might not like what Stryker offers -- the dividend yields just 1.1% at today's share price. However, Stryker has relentlessly increased the payout to investors. Over the past decade, the average dividend raise has been over 11%, so long-term investors are seeing those dividends stack up. Additionally, the payout ratio is 45%, leaving plenty of room for future raises without factoring in earnings growth, which analysts believe will come in around 9% annually.
SYK PE Ratio (Forward) data by YCharts
The stock's biggest drawback is the valuation it trades at. It's fallen some, but at more than 25 times earnings, shares trade at a hefty PEG ratio of about 3. Ideally, investors would get shares at a P/E ratio under 20, but it may take a broader market sell-off to make that a reality. Again, great companies rarely come cheap.
NYSE: CAH
Key Data Points
3. Cardinal Health
Pharmaceutical product and medical supplies distributor Cardinal Health (CAH +0.46%) is the logistical core of healthcare in the United States. There are thousands of hospitals, labs, and care offices in America. Suppliers can't efficiently deliver products to all these locations, so a distributor like Cardinal Health steps in. It buys and stocks large quantities of items from manufacturers and then provides products to these care locations as needed.
Cardinal Health is one of the largest companies in the world, with more than $200 billion in annual revenue. It can operate at a razor-thin profit margin to keep competition out, and the massive amounts of business it does mean that the small profits it makes add up to significant cash streams that flow down to shareholders. The company has paid and raised its dividend for 28 consecutive years, and the payout ratio is a tiny 22%. There is plenty of room for years of increases.
CAH PE Ratio (Forward) data by YCharts
Shares of Cardinal Health are an exception on this list. Today's P/E of 14 looks attractive, considering analysts believe earnings will grow more than 14% annually moving forward. The stock's dividend yield isn't huge, though, at 2.1%, so some investors may wait for a lower price (and, therefore, a higher dividend yield). However, shares could be a solid buy for dividends and share price appreciation.
