Photo by Simon Cunningham via Flickr Creative Commons.
When the stock market starts to get rocky, investors begin to really appreciate stable, dividend-paying companies that are able to consistently dish out cash back to their shareholders. The healthcare sector can be a great place to search for strong dividend-paying companies, as people spend money on healthcare regardless of macroeconomic factors.
We asked our team of Motley Fool contributors to pitch a healthcare stock that pays a strong dividend that can be counted on for years into the future. Read on to see if you agree with them.
Brian Feroldi: As a biotech stock, Amgen (AMGN 0.27%) may not be a name that immediately comes to mind as a company with a rock-solid dividend, but perhaps it should, as the company has been returning cash to shareholders since 2011. While the current 2.3% yield may not get your heart racing, Amgen has been growing its dividend quickly each year, which includes a massive 30% increase earlier in the year.
Beyond a good yield, Amgen also offers investors strong revenue and profit growth potential, as products such as Enbrel, Prolia, Sensipar, Kyprolis, and XGEVA are taking off, which is helping to offset falling sales in older blockbusters such as Neupogen. Beyond those fast growers, the company has recently scored major regulatory approvals for drugs with blockbuster potential, such as its cholesterol-lowering drug Repatha, the leukemia drug Blincyto, and the chronic heart failure treatment Corlanor.
Management has already announced plans to raise its operating margin, reduce its costs, and return 60% of its net income to shareholders. Add it all up, and Amgen should see double-digit profit growth in the years ahead, plus given that the current dividend consumes only about 31% of its free cash flow, there's plenty of room left for this biotech blue chip to continue to raise its dividend for years and years. With the company trading for less than 13 times 2016 earnings estimates, right now could be a great time to consider adding this high-quality biotech to your portfolio.
Selena Maranjian: AbbVie (ABBV -0.84%) recently offered investors a tasty 3.7% dividend yield, and it has increased its payout by 28% over the past two years. Split off from Abbott Labs in 2013, AbbVie is a healthcare powerhouse with a market capitalization topping $85 billion.
AbbVie's dividend might not grow at quite the same clip in the near term, because the company is investing heavily in growth. It has many compounds in its pipeline, for example, and it also recently spent the princely sum of $21 billion for Pharmacyclics and its cancer drugs and pipeline. New growth is necessary for AbbVie, as its blockbuster anti-inflammatory drug Humira (the world's top-selling drug) loses its patent protection in the next few years. (That drug alone generates more than 60% of AbbVie's revenue.) Humira revenues won't just disappear, though. The drug is projected to post nearly $14 billion in global sales in 2020. And meanwhile, AbbVie has expanded the label for Humira and is bringing new drugs to market, such as the intestinal gel Duopa for Parkinson's disease.
It's fair to be a bit cautious with many pharmaceutical concerns, since so much rides on the success of products still in development, but AbbVie is already big and profitable. Not everything in its pipeline will be a big success, but a few big sellers can make up for non-starters and poor sellers. Many Wall Street analysts are bullish, as the median price target for AbbVie among 15 of them was $77 per share, roughly 45% higher than the stock's recent level. Long-term believers should enjoy a solid dividend payout from AbbVie, along with a good chance of stock-price appreciation, too.
The pharmaceutical giant is now yielding 3.3%, which is easily covered by the 50% payout ratio, and backed by one of the strongest balance sheets in the entire market. In other words, Fed or no Fed, good times or bad, this company should keep growing its dividend. In fact, J&J has raised the dividend by an average of 11% per year over the past two decades, meaning that investors who buy at today's price could well see their yield rise to 4%-5% over time.
Still, as Selena pointed out, it's always wise to be cautious with pharmas, since so much depends on their pipelines. But while J&J faces patent cliffs for some key drugs, its near-term pipeline has 10 new drugs planned by 2019. According to the company, each drug could bring in a whopping $1 billion in sales.
Mostly because of currency headwinds, J&J's three divisions quarterly sales recently declined when compared with Q2 last year. But on the heels of that performance, it also raised its earnings outlook to a range of $6.10 to $6.20 per share, from Q1 guidance of $6.04 to $6.19 per share. And the good news is that regardless of currency fluctuations, J&J has grown its adjusted earnings per share, or EPS, for 31 consecutive years. In short, if you're looking for a no-jitters core holding where you can just relax and let the future unfold, this is a company with a superb track record for reliable income as well as sustainable growth.
