3 Super Dividend Healthcare Stocks
Adnan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The financial uncertainty in our debt markets has increased the attractiveness of high dividend stocks. Moreover, international markets are showing no sign of immediate recovery, and financial uncertainty will continue well into 2013. I recommend that investors looking for regular streams of income buy dividend stocks, but only those which have strong fundamentals. The following 3 companies offer a high yield, and analysis shows their dividend is sustainable.
PDL BioPharma (NASDAQ: PDLI)
PDL is a little different from other healthcare companies. It is primarily an IP asset management company that aims to distribute wealth through dividends, of its royalty bearing assets. The Nevada-based company offers patents covering different aspects of humanizing antibodies. The company currently offers an 8% dividend yield and has a payout ratio of 43%.
The most interesting aspect of PDL’s dividend is its suitability, due to its unique model. The company basically pays back the royalties it collects in the form of a dividend; therefore it bears no risk itself. The financial position of the company is sound, with the current ratio approximately 30% above the industry average. Moreover, the stock is currently trading at a P/E of 4.7x and a mean sell side price estimate is $6.90. I believe PDL’s dividend is sustainable, and it is a good dividend play.
GlaxoSmithKline (NYSE: GSK)
GlaxoSmithKline is one of the world’s largest pharmaceutical companies, and has a market cap of more than $100 billion. The company is involved in the discovery and commercialization of various pharmaceutical products. It offers treatments for HIV, CNS (Central Nervous System) diseases, cardiovascular diseases, metabolic, respiratory diseases, vaccines, etc. GSK has a forward annual dividend yield of 5.2%, which is more than twice industry average and the highest amongst big pharmaceuticals.
On the downside, the payout ratio is pretty high (77%) and the company is also highly leveraged. However, the operating cash flow yield is 5.7% and is above the dividend yield, which shows that at these levels its dividends are sustainable. The stock is currently trading at a P/E of 11.6x, which is well below the NYSE average of 18x and has a 10% upside, based on mean sell side estimates. Therefore I believe it’s a good buy for dividend and capital gains.
AstraZeneca (NYSE: AZN)
AstraZeneca has the second highest dividend yield in the healthcare industry at 5.85% percent, and has a market capitalization of approximately $60 billion. It is involved in the discovery and commercialization of biopharmaceutical products, with a focus on prescription medicine for cardiovascular, respiratory, neuroscience, oncology, gastrointestinal, inflammation etc.
The company has been facing headwinds due to patent expiry of its start drug Seroquel IR, which contributed approximately 16% to its total sales. After the patent expiry, the sales of Seroquel IR fell approximately 95%, inducing a 19% sales decline last quarter for AstraZeneca. Despite these issues it still has an operating cash flow yield of 26%, which is way higher than its dividend yield of 5.85%, making its dividend yield sustainable.
The stock is currently trading at a P/e of 8x and approximately equal to its sell side mean estimates of $47.5. I believe that despite the headwinds, AstraZeneca’s yield is sustainable and it is ideal for investors looking for a regular income stream.
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