CVS Health (NYSE:CVS) has been an income investor's dream. The company has been steadily raising its dividend payments for 20 years now, and those increases add up quickly. In the last 10 years alone, its dividend payment is up a huge 797%, and after its most recent dividend hike of 21%, its shares now offer investors a healthy 1.8% yield. Better yet, with numerous avenues for growth ahead of it, the odds look favorable that the company's dividend will continue to grow for years to come.
Despite all of these positives, CVS Health is not my favorite dividend-paying stock right now, so if you're considering buying its stock solely to get your hands on its dividend, here are three other healthcare companies you might want to consider instead.
1. Amgen (NASDAQ:AMGN)
Biotech stocks might not come immediately to mind when thinking about ways to add income to your portfolio, but Amgen isn't just any old biotech. The company has grown into a blue-chip over the past few decades, and its current strong dividend yield mixed with a below-market valuation make it a compelling choice right now.
Amgen has long been a cash machine thanks to its best-selling drugs Enbrel and Neulasta. Although these drugs might finally be facing some competition from biosimilars, Amgen's huge pipeline should help it stave off any potential revenue declines. Two recent drug launches look particularly promising: Repatha, which is used to lower cholesterol levels, and Kyprolis, its multiple myeloma treatment. Each of these drugs holds blockbuster potential, and when mixed in with the expected revenue from its other products, it should have no problem keeping its revenue and profits moving in the right direction.
Amgen is expecting to generate around $10 in earnings per share in 2015. That means its stock is only trading at a meager 15 times trailing earnings, which I'd argue is a perfectly fair price for a company expected to grow its bottom line by nearly 10% over the next five years. Add to that a sustainable 2.7% dividend yield that is poised for fast growth, and I think this stock is a great choice for income investors.
2. AbbVie (NYSE:ABBV)
Pharma giant AbbVie is getting no love from the markets these days. Shares have declined so much over the past few months that they are now trading for less than 11 times their 2016 earnings estimates. The decline in its share price mixed with a recent dividend increase of 12% has pushed up its yield to a tempting 4.1%.
Why the share price decline? The company has been hit hard by news that Veikira Pak & Technivie -- two of AbbVie's drugs that treat Hepatitis C -- received warning letters from the FDA on reports that some patients who used the drugs were having liver injuries. Add in the fact that the patent for AbbVie's best-selling immunology drug Humira is expiring later this year, and investors are feeling down about the company's prospects.
Despite all of this, I think there are reasons to be optimistic, especially at today's discounted share price. AbbVie counts more than 20 new products or indications in its pipeline that it believes hold the potential to hit nearly $30 billion in peak sales down the road. All told, the company believes its revenue will grow to $37 billion by 2020, compared to only $20 billion in 2014. When factoring in its plans to expand its margins, the company believes its earnings per share will grow on average by double digits each year from now until 2020.
If the company can deliver on those targets, shareholders who get in today will bank a strong dividend yield and the potential for nice share price appreciation.
3. Johnson & Johnson (NYSE:JNJ)
When I think of the best of the best dividend stocks, Johnson & Johnson always comes to mind. The company is so big and so broadly diversified that it can generate steady cash flows even in the most challenging of economic environments.
The company pulls in sales from three major product categories: consumer, pharmaceuticals, and medical devices. While all three of these segments hold potential, its pharmaceutical business looks particular primed for future growth as it counts more than 10 potential blockbuster drugs in development, or in the early innings of their commercial life cycles. As these new drugs hit pharmacy shelves, the company's profits should continue to move higher, which should lead to slow and steady share price appreciation.
Johnson & Johnson has been a dividend investor's dream for decade as it has successfully increased its payout for 53 straight years. Shares are currently yielding 3.1%, and its trailing price-to-earnings ratio is under 19. Both of those numbers compare favorably to CVS Health's stock right now, which indicates this dividend all-star could be the smarter choice right now.
Brian Feroldi has no position in any stocks mentioned. The Motley Fool recommends CVS Health and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.