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5 super interesting dividend companies from the healthcare sector

Mart Poom
19. 6. 2023
6 min read

The healthcare sector is undoubtedly one of the most common choices for dividend investors. Just by its very nature, which is unfortunately a bit sad - people are sick and will be sick. This is regardless of the macroeconomic situation.

The healthcare sector is one of the favorite choices of dividend investors. There are several obvious reasons for this.

First, as I mentioned earlier, healthcare companies have stable and predictable cash flow. Their products and services are essential and demand for them is resilient to the economic cycle. They do not have to worry about large fluctuations in sales or profits in response to an economic recession. This helps healthcare companies maintain a stable and secure dividend policy.

Second, it is a sector with a low correlation to the broader market. This means that when stock prices fall in the general market, it does not necessarily mean a decline for healthcare firms. Low correlation is important for dividend investors because it reduces overall portfolio risk.

Third, this is an industry with above-average margins and a strong ability to generate free cash flow. With high profits, companies have sufficient funds to maintain and grow dividends. This is also why healthcare companies often have higher dividend yields than other sectors.

Fourth, healthcare is an industry with societal importance. Despite the risks associated with innovation and regulation, there is less likelihood of disruptive changes that could threaten dividend sustainability.

And now to the agents themselves.

Johnson & Johnson $JNJ+0.0%

Johnson & Johnson is an established pharmaceutical and healthcare giant that has long held a reputation for its reliable dividend. The company focuses on three areas of business - pharmaceuticals, medical devices, and consumer care.

JNJ
$144.44 $0.06 +0.04%

When it comes to dividends, Johnson & Johnson has been paying a steady and upward quarterly dividend for more than 60 years. It has raised the dividend continuously since 1963, making it one of the "dividend kings." It currently pays a quarterly dividend of $1.13 per share, which represents a dividend yield of about 2.7%. Investors appreciate the low dividend increases of just a few cents, which signals the sustainability of earnings distributions over the longer term.

The company has sufficient resources to pay and grow dividends due to its strong market position and high margins. The firm did not cut the dividend even during the pandemic crisis, which signals cash flow stability. For 2023, the firm expects further growth in sales and earnings.

Medtronic $MDT-0.6%

Medtronic is a global medical technology company that is one of the largest providers of these solutions in the world. Its key products include pacemakers, catheters, pulmonary ventilators, insulin pumps and surgical robots. Medtronic is headquartered in Dublin, Ireland, but operates in markets around the world.

MDT

Medtronic

MDT
$81.49 -$0.51 -0.62%

When it comes to dividends, Medtronic is one of the most consistent payers among healthcare companies. It has paid a continuous dividend since 1977 and has increased it 43 times in that time. It currently pays a quarterly dividend of around 3% per year.

On average, Medtronic uses about 50% of its net income to pay dividends. Now, however, that ratio has climbed to nearly 100%, which is something to keep in mind. Despite heavy reinvestment in research and innovation, the company is able to generate enough cash for dividend payments because of the scale of its business and its market-leading position.

The company expects to continue to grow earnings by 6-9% per year, which would allow it to increase the dividend by a similar amount. Management is cutting the dividend only very cautiously and is committed to maintaining it at its current stable level. This signals the sustainability of the dividend policy for the coming years.

Merck $MRK-0.2%

Merck is one of the largest pharmaceutical giants in the world, producing a wide range of drugs for human and animal patients. Its products include vaccines, immunotherapeutics, cancer, metabolism and heart disease drugs. The company is based in the United States.

MRK
$125.90 -$0.19 -0.15%

Merck's dividend policy is one of the most consistent in the pharmaceutical sector. The company has paid a continuous dividend since 1993, 30 years. It has been able to increase the dividend every six months, thus meeting the criteria of a dividend king.

Once a year, the company assesses whether it has the right conditions for a dividend increase, taking into account fundamental sector trends as well as the company's own situation. This ensures that the dividend is sustainable even in more challenging periods.

Merck is able to pay and increase the dividend thanks to its strong market position, innovative products and quality cost management. Although the company's debt ratio has increased in recent years, free cash flow production remains at a very good level. The company is expected to be able to continue to increase its dividend by 5% or more per annum in the coming years. This should make Merck's dividend attractive to investors going forward.

Abbott Laboratories $ABT-1.2%

Abbott Laboratories is a medical diagnostics and medical device company. Its main products include blood sugar monitoring systems, HIV and hepatitis C tests, pacemakers, surgical instruments, and robotic systems. Abbott Laboratories has paid a steady and growing dividend since 1984.

ABT
$100.73 -$1.22 -1.20%

The current payout equates to a dividend yield of about 1.87%. Despite the company's relatively low dividend yield, its policy of distributing earnings to shareholders is considered sound. This is due to its long-term ability to increase the dividend. Over the past 37 years, the firm has increased it continuously.

Abbot Laboratories pays out approximately half of its net income to shareholders as a dividend. It is able to pay and increase the dividend because of its research and development productivity, which allows it to bring innovative solutions to market and remain competitive.

The company is also benefiting from an ageing population, which is increasing demand for its diagnostic and monitoring systems. This helps it to maintain a high cash flow, which is partly channelled into dividends. Going forward, Abbott Laboratories management expects further growth and the opportunity to increase the dividend.

Baxter International $BAX-1.9%

Baxter International is a global healthcare solutions company. Its portfolio includes infusion systems, hemodialysis, surgical devices and regenerative medicine agents. Baxter International is headquartered in the United States.

BAX
$33.19 -$0.66 -1.95%

In terms of dividend, Baxter International is one of the reliable dividend payers in the healthcare sector. It has been paying a dividend since the 1970s and has continuously increased it since 2004. Currently, investors receive a quarterly dividend of 2.56%.

Although Baxter's dividend yield is relatively low, the company is able to increase dividends over the long term due to its high value-added products and good cost management. The firm's performance in recent years has shown growth in both sales and earnings, allowing it to generate sufficient free cash flow to fund dividend payments.

Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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