Most dividend investors are looking not just for a high yield, but also for a company that can reliably support that yield over the long term. It is harder to find than you may think, but not impossible.
Three solid options in the healthcare sector are pharmaceutical giant Bristol Myers Squibb (BMY 1.72%), medical device giant Medtronic (MDT 1.79%), and drug and device giant Johnson & Johnson (JNJ 0.39%), which offer yields of up to 4.6%.
Income is not enough
One of the significant issues that dividend investors face isn't directly an investment phenomenon; it is an economic one. Over time, inflation erodes the buying power of the income you generate from dividends. This is why you should focus on companies that have the capacity to grow and, at the same time, have proven track records of rewarding shareholders with dividend growth.
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Healthcare is an innovation-driven industry, where new products help support growth. Also beneficial is simple population growth. Countries moving up the socio-economic ladder are also a plus, since it means more consumers can afford more medical products.
Essentially, Bristol Myers Squibb, Medtronic, and Johnson & Johnson are all in a strong industry if you prefer dividend-paying stocks. However, the proof is in the pudding, as the board of directors of each company determines its dividend policy.
Bristol Myers Squibb: A proven survivor
Bristol Myers Squibb's dividend history is the least impressive, as it has trended higher for decades but hasn't actually been increased every single year.
That makes sense, however, given the nature of the pharmaceutical business. Blockbuster drugs only have a limited time period in which they are protected by patents, so Bristol Myers Squibb is always searching for new big drug developments and dealing with the patent cliffs that come when a blockbuster drug loses patent protection.
NYSE: BMY
Key Data Points
Bristol Myers Squibb's dividend yield is the highest on this list at 4.6%. It is currently facing down a patent cliff of several blockbuster drugs, including Eliquis, Opdivo, and Revlimid. That has investors worried, perhaps rightly so. However, history suggests the company will survive this period, noting that it appears to have a solid pipeline of new drug candidates. And, while an 85% dividend payout ratio is somewhat high, it still leaves some wiggle room for the dividend.
You can buy around nine shares of Bristol Myers Squibb with $500.
Medtronic: Nearly a Dividend King
Medtronic's yield is 2.9%. A $500 investment will allow you to buy around five shares of this medical device maker. The fact dividend investors will likely find most interesting here is that with 48 annual dividend increases behind it, Medtronic is just two years shy of achieving Dividend King status. That's an incredible amount of consistency, highlighting just how reliable a dividend stock Medtronic is.
NYSE: MDT
Key Data Points
Medtronic's yield is actually toward the high end of its historical range. That's because the company's growth has been in neutral for a few years. However, a business overhaul that will refocus the company on its most profitable and fastest-growing divisions is just about complete.
New medical devices are also starting to come to market, following a lull in innovation from the company. Long-term investors who don't act soon could miss the opportunity to buy this reliable dividend stock while it is still offering a high yield.
Johnson & Johnson: A reliable Dividend King
With over six decades of dividend increases under its belt, Johnson & Johnson boasts the best dividend track record, by a wide margin. The company's diversification helps in this regard, as it operates in both the drug and medical device niches. That said, it also has the lowest dividend yield, at 2.5%. A $500 investment will allow you to buy roughly two shares of the stock.
NYSE: JNJ
Key Data Points
Given its business diversification and dividend track record, J&J is probably the most appropriate option for conservative dividend investors. However, it is not a risk-free investment, noting the lingering overhang surrounding class action lawsuits about talcum powder that the company once produced.
That said, Johnson & Johnson has proven adept at navigating challenging times before while continuing to reward investors for their loyalty. And with a 50% payout ratio, there's plenty of room for adversity before the dividend would be at risk.
Buy and hold these high-yield healthcare stocks
While Bristol Myers Squibb, Medtronic, and Johnson & Johnson are all attractive for their own reasons at present, the real benefit of owning them lies in the long term. You want to buy and hold, perhaps forever, so you can keep collecting the well-above-market yields they offer, backed by dividends that have strong histories of growth.
