Collecting Dividends From the Healthcare Sector
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Continuing on with the dividend trend that my recent articles have been focusing upon, I’d like to now take a look at some solid healthcare companies. These companies must meet two strict criteria in that they must be profitable, and they must pay a dividend. That’s not too harsh, right? Well, away we go into the wild world of healthcare!
Major drug manufacturers
You had to guess that a healthcare article would start out with one of those big names. In my case, I went with Pfizer (NYSE: PFE). Now, there are plenty of huge names in this space and many of them pay exceptionally large dividends. There are even some foreign names that may be worth a look, such as AstraZeneca and GlaxoSmithKline. For now though, we’re going to stick with Pfizer.
One name that everyone will be familiar with from Pfizer is Viagra. It’s okay, you can admit it. That’s not all this company has out there though. In addition to Viagra, there are also other name brands in Chantix, Celebrex, Lipitor, and Zoloft. That’s just naming a few, Pfizer is actually huge.
All of those medications combined added up to $59 billion in sales for fiscal year 2012. From that, Pfizer managed to generate some $9.5 billion in profits. It’s astonishing, isn’t it?
The one problem that drug companies tend to have is coming up with new drugs to bring to market. Drugs are patented, and they eventually run out of patent allowing the generic manufacturers to jump in and bring down the cost.
Luckily, Pfizer has quite a pipeline. As of the last update, there were 78 drugs falling into one of the four pre-market phases. In the period between November and February, Pfizer managed to bring one new drug to market, Eliquis.
Pfizer pays a dividend that yields 3.1%. That dividend is relatively secure, but likely won’t see too many raises as the payout ratio sits at 45%.
When it comes to growth, the next two years are looking at anywhere from 3%-5% according to analysts covering the stock.
Baxter International (NYSE: BAX) supplies hospitals with the things they need to accomplish the health services that many around the country require. Baxter provides the supplies to achieve a variety of tasks. Those tasks range from albumin therapy all the way to putting someone under general anesthesia.
Baxter managed to generate sales of more than $14 billion last year from their diversified product lineup. Sales over the last five years have been growing at a rate of around 3.98% per year.
When it comes to earnings, this medical supply juggernaut generated $2.33 billion last year. Those earnings have a five year growth rate that’s sitting at 7.16%. Future earnings growth, as projected by the analysts, is expected to be around 6.75% per year over the next two years.
Oh, hey! We’re all here for dividends aren’t we? Don’t you worry, Baxter provides investors with a dividend that yields 2.6%. That dividend has been growing over the last five years by a rate of 8.72%. There also is a little breathing room for future increases if the stock keeps its growth on track as the payout ratio is a solid 41%.
If you’ve had blood work done recently, there’s a very good chance that a company like Quest Diagnostics (NYSE: DGX) put you under the microscope.
Quest Diagnostics performs a variety of tests on patients around the country. These tests could be at the choice of the patient, or at the choice of a general practitioner with something like blood work.
Performing these tests generated $7.3 billion in sales for the company in 2012. From that, Quest was able to generate around about $630 million in net income.
Revenue has been on the decline, but only slightly, over the last three years at Quest. Taking the last five years into account, they are actually positive. Looking at analysts estimates over the next couple of years, we can see that they’re expected to grow earnings by a rate of about 5% per year.
The dividend from Quest is the lowest of the bunch at 2.1%. This dividend has been growing at a rate of around 8% per year over the last five years. It also shows no sign of disappearing as the company’s payout ratio is only 28%.
I like Pfizer and Baxter, and Quest Diagnostics.
Pfizer is one of the largest pharmaceutical companies in the world and their huge earnings allow them to continue their research into new drugs. Obviously not every single drug in the pipeline now will make it to the market, but the few that will are enough to justify a buy on Pfizer for the long-term.
Baxter International is showing nice growth with a nice little yield tacked on the end. Analysts seem to love the company as they’ve given it an average rating of 1.86, a ‘moderate buy’.
Quest has carved out its own little niche market, and they’re one of the largest providers of diagnostic services. With the aging population likely on their way to more and more tests, I definitely feel that Quest is a good place to park the cash over the long haul.
Ash Anderson has no position in any stocks mentioned. The Motley Fool recommends Quest Diagnostics. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!