Three Stocks with Healthy Dividends
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There are good reasons to consider investing in dividend paying healthcare stocks. The industry may be complex and affected by many regulatory issues, but over the long term the demand picture looks very strong for healthcare companies. The world population is aging and standards of living are increasing, while technical and technological advancements in healthcare are also producing a constant flux of better products and services that improve our quality of life.
The healthcare sector can be considered quite defensive too -- nobody buys new drugs or starts a new medical treatment because they feel like spending a few bucks on something nice. On the contrary, healthcare spending is more a necessity than a luxury. If we add dividends to the defensive characteristics of many healthcare companies we end up having some very solid stocks that should be able to weather the changing economic climate and also provide some income to investors in the meantime.
Better yet, let's choose companies that have a solid trajectory of dividends increases, so investors could expect some capital gains too in the long term. If the company regularly increases dividend payments, the stock price needs to react to that growth in order to adjust for the higher dividends. Many academic studies have shown that dividend growth companies tend to be very strong performers in the long term.
If we're talking about healthcare and dividend paying titans, we need to mention Johnson & Johnson (NYSE: JNJ). The company operates in the pharmaceuticals, medical devices and consumer healthcare business, and it also has a wide geographical diversification with products sold in more than 170 countries. Johnson & Johnson has had some troubles lately, like products recalls and legal litigations, but it's quite fair to say that the company won't disappear anytime soon.
I don't thinks its dividend is going anywhere either, in fact it's quite likely that payments will continue growing in the future. Johnson & Johnson has increased dividend payments for 49 consecutive years, including recessions, wars and regulatory complications among other hurdles. This isn't the first time the company has faced product recalls and negative press coverage, but that hasn't stopped the dividend from growing -- Johnson & Johnson pays a 3.5% dividend yield.
Abbott Labs (NYSE: ABT) has been performing well lately and the stock hit new all-time highs above $61. Investors have reacted quite optimistically to the company's earnings reports and the news about Abbott splitting its business in two. Abbott's plans are to separate the research-based pharmaceuticals from the medical products business in order to better focus research and capitalize growth opportunities.
Abbott may be one of the more interesting growth stories among big healthcare stocks for the coming years, since it has many interesting developments in its pipeline, but shares of Abbott don't look expensive at all. Regardless of the recent run up, they yield 3.4% in dividends and the company has increased payments for the last 39 years.
In the medical devices business, a company with a very strong trajectory of dividend increases is Medtronic (NYSE: MDT), which is involved in the in "research, design, manufacture and sale of products to alleviate pain, restore health and extend life," according to the company's filings. The company makes products like pacemakers, implantable defibrillators, coronary stents, heart valve replacement systems as well as products and systems for pain treatment, diabetes and spinal treatments among other.
Medtronic has raised dividends for 34 consecutive years and currently yields 2.5%. However, the dividend growth rate is what looks quite outstanding, with an increase of more than 17% annually on average over the last five years. Over the long term it may be really challenging to sustain that kind of dividend growth since earnings are unlikely to grow so fast, but Medtronic has a dividend payout ratio above 30%, which allows for plenty of room for dividend hikes.
These companies work every day to improve the health of millions of people around the world. If you want to reduce your stress and sleep better at night, consider adding some dividend growing healthcare stocks to your portfolio.
Motley Fool newsletter services recommend Johnson & Johnson. The Motley Fool owns shares of Abbott Laboratories, Johnson & Johnson and Medtronic. acardenal has no positions in the stocks mentioned above. 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.