Healthcare doesn't get the hype that other industries -- say, technology -- get. However, there arguably isn't an industry more important to humankind's well-being. That's especially true in the United States, the world's most lucrative healthcare market -- a multi-trillion-dollar behemoth where investment opportunities abound.
Sifting through the industry revealed three blue chip stocks with stellar records of execution, future growth opportunities, and an enticing dividend. They offer both passive income and reinvestment potential that could boost overall returns.
Here is why Johnson & Johnson (JNJ +0.43%), Abbott Labs (ABT 1.18%), and Pfizer (PFE +1.65%) should all be on your radar as a long-term investor. You can own a share of each for less than $1,000 all-in.
You won't find a safer stock than this Dividend King
Johnson & Johnson has been thriving in the healthcare business for generations. The company has paid and raised a legendary dividend and has had a growth streak of 62 years and counting. Most know the company for some of its consumer brands, like Tylenol and Band-Aids, but that's the old Johnson & Johnson. The company recently spun off its consumer business as Kenvue and is now a two-headed monster of pharmaceuticals and medical technology.
NYSE: JNJ
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Following the spin-off, the goal is to lean more heavily into these two higher-growth business units, which could mean more earnings growth for shareholders. The spin-off produced an infusion of cash for Johnson & Johnson, which has been put to work, acquiring Shockwave Medical for $13.1 billion and Ambrx Biopharma for another $2 billion. The company's financials are among the best on Wall Street, and it is one of two public companies with an AAA credit rating, something not even the U.S. government can boast.
Additionally, Johnson & Johnson's dividend is as strong as ever. The stock yields a solid 3.3% at today's share price and has grown by an average of nearly 6% annually over the past five years. The dividend payout ratio is manageable at just 64% of cash flow, meaning you can trust the dividends to keep coming well into the future.
As a mature healthcare conglomerate, Johnson & Johnson won't blow you away with growth. Getting the stock at a solid price is essential. Shares are near 52-week lows and trade at 14 times earnings, a discount to the broader market, making now a solid time to consider adding shares.
Cardiac and diabetes are enormous opportunities for this healthcare superstar
Abbott Labs has been in the healthcare business for over a century. Its ability to evolve its business over time is a big reason why the stock has been such a stellar long-term investment. Today's version of Abbott Labs focuses on some key growth areas. It sells nutrition products, including shakes and baby formulas. It also works in diagnostics and medical devices, specifically specializing in treatments for cardiovascular health and diabetes. The company also manufactures generic drugs for international markets.
NYSE: ABT
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This diverse business footprint has helped Abbott Labs grow its shareholder dividend. Abbott Labs is a Dividend King, a company with over 50 consecutive years of dividend growth. The dividend doesn't yield a ton today, just 2.1%. However, it has grown by an average of 6.5% annually over the past five years, and the payout ratio is solid at 70%.
Notably, the company has a strong growth outlook. Analysts expect earnings growth averaging 9% annually over the next three to five years, carving out the potential for future dividend increases while potentially lowering the payout ratio in the process. Heart disease and diabetes are some of the most prevalent chronic conditions facing society, and it's a wise place for Abbott Labs to have set up shop. The company is a leader in pacemakers and prick-free glucose monitoring devices.
There's more to this pharmaceutical giant than COVID-19
Pfizer has been an odd stock to follow for the past several years. A longtime leader in the pharmaceutical field, Pfizer roughly doubled its business during the pandemic as a leading manufacturer of the COVID-19 vaccine and treatment. However, that business understandably dried up as the pandemic passed, and the giant hole left in sales and profits cratered the stock to its lowest levels in nearly a decade.
NYSE: PFE
Key Data Points
However, the company still has a lot to offer investors. Pfizer has used its profit windfall from the pandemic to acquire new assets. Late last year, it executed a blockbuster merger with oncology company Seagen for a whopping $43 billion. Now that the COVID-19 business has bottomed out, analysts believe Pfizer's earnings could compound at 10% annually over the next three to five years.
That's fantastic news for a company whose stock got crushed so much that it cranked its dividend yield to a juicy 6%. Typically, high yields like this are a red flag, a sign the market doesn't believe it can afford the payout. However, healthy growth should wash away those worries, and Pfizer still has $3 billion in cash to help support the payout. The company raised the payout in late 2023, a sign of confidence in its future.
