Searching for the top dividend paying stocks is easy. Use any screening tool -- The Motley Fool has one here -- and search for dividend yields above a certain threshold.
But any experienced investor knows there's more to a dividend-paying stock than its yield. Dividend yields are often high because the share price has sunk because investors aren't confident the payout can be sustained.
Rather than characterizing the top dividend-paying stocks as those with the highest yield, let's define them as stocks that can provide the best return -- dividend yield plus growth in share price -- to give us healthy companies with strong cash flow that can help raise the dividend in the future.
Here are three healthcare stocks I believe fit the bill and should do well in 2015 and beyond.
Top dividend-paying stock: Johnson & Johnson (JNJ -0.09%)
You really can't go wrong with this Dividend Aristocrat, which has raised its dividend annually for the last 52 years.
Admittedly, the dividend yield has been higher than the 2.6% it currently sports -- and those were often good times to buy.
But Johnson & Johnson's prospects still look healthy even with the company's stock trading near its all-time high. There are certain advantages of scale that come with being a large company. For example, it's easier to expand margins when costs are dispersed across a larger revenue stream.
Of course, conglomerates can also develop wasteful spending that is hard to root out due to the layers of bureaucracy. Johnson & Johnson has done a pretty good job of avoiding that problem by giving its business units a bit of autonomy, including separate names. The company's drug unit, for example, goes by the name Jansen. The separation also allows the units to be evaluated independently, and Johnson & Johnson is known for selling units that aren't performing well.
Top dividend-paying stock: Abbott Labs (ABT +0.37%)
Both Abbott and its pharma spin-off, AbbVie (ABBV -0.02%), offer a dividend, but I believe Abbott is the better dividend stock, despite AbbVie having the larger yield.
The spin-off relies heavily on one product, anti-inflammatory drug Humira, which provided 62% of AbbVie's sales in the third quarter. There's potential for diversification into hepatitis C, but AbbVie would face stiff competition from Gilead Sciences (GILD -0.52%).
Abbott, on the other hand, is more diversified. What's left after the spin-off is a nutrition business -- baby formula, sports bars, and the like -- diagnostics, medical devices, and branded generic drugs that Abbott sells internationally.
Nutrition, which is Abbott's largest division, grew 9.3% year over year in the third quarter thanks to strong international sales. Branded generics, the smallest of the divisions, grew 11.5% year over year. Overall sales were up 5.8%, which is nothing to get too excited about, but it's solid growth that can provide a nice increasing dividend for years to come.
Top dividend-paying stock: Amgen (AMGN +1.55%)
Amgen is the only big biotech to offer a dividend. It's a sure sign the company's growth has slowed, but at least it isn't hoarding cash.
There's talk of the company splitting into two, spinning off its research and development-intensive growth products. That could be a good value-creating opportunity. When two parts of a company are growing at different rates, the faster-growing one tends to get a lower valuation than it would on its own.
Obviously, the dividend would stay with the more established businesses, but dividend investors could just sell the spin-off if they weren't interested in owning that portion.
If the company stays as one -- and management has said that is its preference -- the quick value creation won't happen, but investors looking at Amgen specifically for its dividend might be better off, as the new drugs can help fund the dividend.
