Top 5 Healthcare Dividend Stocks – A must to build a core portfolio

Healthcare Dividend Stocks - HeaderHealthcare can be a profitable sector to have in your portfolio. Any dividend growth investor should consider having at least 1 healthcare dividend stocks.

As a market, the healthcare industry is highly regulated and not easy to get into but yet, new research and findings continue to offer growth. There are 2 industry groups and  6 industries in the healthcare sector each with their own business potential, feel free to complement your holdings across multiple industries. The breakdown at a high level is between:

  • Health Care Equipment & Services
  • Pharmaceuticals, Biotechnology & Life Sciences

Johnson & Johnson

JNJ - Johnson & Johnson

Johnson & Johnson


Market Cap: 328.86B

Chowder Score: 9.30%

Industry: Drug Manufacturers

Johnson & Johnson is one of the biggest healthcare companies having an extensive global presence, with over one billion people using its products daily.

The company has a well-diversified global footprint with the US accounting for 50% of the company’s sales, and international markets constituting the remaining 50%.

Johnson & Johnson is organized into three business segments:

  • Consumer: accounts for 17% of sales (baby and beauty, health and healing products)
  • Pharmaceutical: represents 49% of sales, (immunology, cardiovascular & metabolic disease, infectious diseases & vaccines, neuroscience, oncology)
  • Medical Devices: constituting the remaining 34% (surgery, orthopedics, cardiovascular disease & specialty). The company has a strong product portfolio as well as a large pipeline which is expected to convert into revenue in future.
JNJ - 2018Q1 Revenue Breakdown
Source: 2018Q1 JNJ Earnings

Johnson & Johnson has a strong R&D base spending almost 14% of sales on R&D, making it amongst the top five US companies for R&D investment.

Johnson & Johnson is one of the most reputed healthcare organizations in the world with more than 130 years of existence. Today, the company has become synonymous with health and baby care products. Some of its top-selling and well-known brands are Neutrogena, Aveeno, Listerine, Tylenol, Motrin, and Zyrtec. Consumers are reluctant to switch healthcare brands unless absolutely necessary making J&J’s business highly sticky in nature. Healthcare companies are also subject to stringent regulations that act as a major entry barrier for new entrants.

Johnson & Johnson acquired Actelion in 2017 which expanded the company’s portfolio in the pulmonary arterial hypertension disease area. The company is also making good progress on a restructuring program which will help in cost savings of $800 million – $1 billion by 2018 end.

A trusted brand name, diversified businesses, extensive global distribution network and a growing customer base are the company’s key competitive strengths. Johnson & Johnson stands in a good position to benefit from continuous innovations in healthcare and aging of the global population.

Johnson & Johnson is a Dividend King increasing dividends for the 56th consecutive year. It has grown its dividends at more than 7% CAGR over the last decade and currently sports a dividend yield of 2.94%. The company last announced a 7% increase in its payout and should continue the same dividend growth rate, given the management guidance of mid-to-high single digit earnings growth.

JNJ - 1q2018 Revenue
Source: 2018Q1 JNJ Earnings

AbbVie Inc

ABBV - AbbVie Inc



Market Cap: 155.91

Chowder Score: 19.51%

Industry: Drug Manufacturers

AbbVie is a leading global biopharmaceutical company engaging in the research and development of therapies for some of the most serious human diseases facing the world.

AbbVie operates through only one business segment – Pharmaceuticals. The company produces drugs for several different therapeutic areas such as rheumatology, oncology, virology, neurology etc. AbbVie’s blockbuster drug, Humira is one of the best-selling drugs globally and accounts for almost two-thirds of the company’s revenue. The drug is used to treat psoriasis and rheumatoid arthritis. Other well-known products include Vicodin, Androgel, and Marinol. The company also has a robust late-stage pipeline across several therapeutic areas.

Formed as a spin-off from Abbott Laboratories in 2013, AbbVie has a huge worldwide presence. More than 26 million people in 200 countries use AbbVie’s products each year. The US accounts for over 60% of AbbVie’s revenue while international markets constitute the remaining 40%. The company has a large distribution network consisting of AbbVie-owned distribution centers and warehouses from where AbbVie’s products reach wholesalers, distributors, and government agencies worldwide.

ABBV - 2018Q1 Revenue Breakdown
Source: AbbVie 2018Q1 Report

AbbVie is looking at launching 20 new products by 2020 to further strengthen its product portfolio. The management expects drug sales (excluding Humira) to reach more than $35 billion by 2025. It is aggressively investing in R&D activities with investment in research increasing by more than 70% over the last five years.

Strong R&D capabilities, a strong line of successful products, extensive patent portfolio, and global brand recognition are some of AbbVie’s key strengths. The company will benefit from a growing demand for prescription drugs and medical supplies.

Since inception, AbbVie has increased its dividend by 140%. The shareholder-friendly company last raised its dividend payout by 35% and also authorized a new $10 billion stock repurchase program. It also has a relatively high dividend yield of 3.9%.

AbbVie should continue its double-digit dividend growth pace in the future; given the company’s intent to rapidly produce introduce drugs in fast-growing markets.

Abbott Laboratories

ABT - Abbott Laboratories

Abbott Laboratories


Market Cap: 108.94

Chowder Score: 8.21%

Industry: Medical Devices

Abbott Laboratories is a leading healthcare and research company having a presence in more than 150 countries worldwide. With over 130 years in business, Abbott has become the worldwide leader in adult nutrition and blood screening. It enjoys a leadership position in virtually every market it serves.

Abbott has four reportable segments, see the 2017 sales breakdown:

  • Established Pharmaceutical – 16%
  • Nutritional – 27%
  • Diagnostic – 23%
  • Cardiovascular and Neuromodulation – 34%

Its portfolio consists of more than 1500 products across multiple therapeutic areas. The strategic acquisitions of St. Jude Medical and Alere last year have further bolstered Abbott’s leadership position across the spectrum of cardiac-care specialties, neuromodulation, and point-of-care diagnostic testing.

Abbott is trusted worldwide for its quality products and breakthrough medicines. Some of its most famous brands include Similac, FreeStyle, Brufen, Alinity, and PediaSure. The company has been at the forefront of innovation, developing the groundbreaking glucose sensing technology, innovative devices for chronic pain and novel diagnostics solutions.

The company has a strong focus on emerging economies and should benefit from their rising aging populations, growing disposable income and improving healthcare systems. About 40% of its revenues come from emerging markets.

ABT - Market Shares
Source: Abbott Laboratories Corporate Infographic

A growing percentage of people suffering from heart ailments and diabetic diseases should be beneficial for Abbott, given its leading position in diabetic care and cardiovascular disease treatments in the developed markets.

Abbott’s strong reputation, complementary portfolio of businesses and a strong presence in the world’s largest and fastest growing markets provide a strong competitive moat to its business.

Since 1973, Abbott has been increasing its dividends every consecutive year making it a member of the S&P 500 Dividend Aristocrats Index. The company has paid dividends for 95 years in a row.

The average dividend per share growth was 6.4% per year over the last three years and Abbott recently raised its dividend payout by 5.7%. The company should comfortably maintain at least a single digit dividend growth rate, given its expectation of a low double-digit earnings growth in future.

ABT - Business Segments
Source: Abbott Laboratories Corporate Infographic

Becton Dickinson & Co

BDX - Becton Dickinson & Co

Becton Dickinson & Co


Market Cap: 61.49

Chowder Score: 11.44%

Industry: Medical Instruments & Equipment

Becton, Dickinson & Co is a leading global medical technology company providing solutions in the fields of advanced medical research and genomics.

Becton, Dickinson & Co enjoys a leadership position in medication management and infection prevention. The company is poised to become one of the top five medical technology companies in the world once it successfully integrates the operations of C. R. Bard, Inc., which it acquired last year.

Becton Dickinson has a presence in virtually every country in the world. The US is its largest market accounting for more than 50% of its revenues followed by Europe, Greater Asia, and others. The company is expanding in emerging countries which are poised to become large markets in the future owing to the rapidly growing demand for healthcare.

The company’s key segments are BD Medical accounting for 67% of 2017 revenue (Diabetes care, medication and procedural solutions and pharmaceutical systems) and BD Life Sciences accounting for the rest (preanalytical, diagnostic systems and biosciences).

BD - Market Segments
Source: BD Investor Reports

With more than a century’s old existence, Becton Dickinson & Co has become a leading name in providing advanced healthcare solutions, diagnostics and the delivery of care. The company has developed a good understanding of patient needs and provides effective solutions for the same. Becton Dickinson & Co has several R&D centers worldwide. Millions of patients and healthcare providers depend upon the company’s cost-effective and efficient solutions.

A deep understanding of customer needs, extensive R&D, a large global distribution network, diverse portfolio of medical products and growing footprint in emerging markets are Becton Dickinson & Co’s key competitive strengths. Growing demand for better medical diagnostics should act as a key growth driver for the company.

Becton Dickinson & Co is a Dividend Aristocrat as it has raised dividends for more than 25 consecutive years. The company last raised its dividend by 2.7% and management estimates that earnings will grow in the high single-digit range till 2019 as it integrates C. R. Bard, Inc. It is a good long-term dividend growth candidate with a five-year dividend growth CAGR of 10%. Investors should expect solid dividend growth going forward as well.

BD - Bard Integration
Source: BD Investor Reports

Cardinal Health Inc

CAH - Cardinal Health Inc

Cardinal Health Inc


Market Cap: 16.85

Chowder Score: 16.63%

Industry: Medical Distribution

Cardinal Health Inc. is a global, integrated healthcare services and products company. It is a leading distributor of pharmaceutical and medical products to pharmacies, hospitals and other healthcare providers in more than 60 countries worldwide. The company is involved in the manufacturing and sourcing of nearly 2.5 billion healthcare products each year.

Cardinal Health has become a leading household name with more than 2 million patients using its healthcare products.

The company’s reportable segments are Pharmaceutical and Medical. Accounting for 90% of the revenues, the Pharmaceutical segment is the company’s’ main cash cow involved in the distribution of specialty and generic pharmaceutical, healthcare, and consumer products in the US. The Medical segment (constituting the remaining 10%) manufactures and distributes Cardinal Health and other branded medical, surgical and laboratory products, in the US, Canada, Europe, Asia and other markets.

With decades of healthcare experience, Cardinal Health has become a preferred partner for providing safe and secure channels for the delivery of medications. As one of the largest healthcare supply chains in North America, Cardinal Health is trusted for its supply chain strategies which have resulted in superior inventory management reducing costs for its partners. The company owns one of the country’s largest distribution networks and engages with suppliers globally. With a presence in nearly 85% of the US hospitals, Cardinal Health occupies a dominant position in the healthcare industry.

The company is known for its portfolio of high quality and value-oriented products spanning medical, surgical, pharmaceutical and specialty segments. The product portfolio will be further strengthened by the addition of Medtronic’s patient products which are used in nearly every U.S. hospital.

A well-recognized brand name, economies of scale, extensive distribution infrastructure and a strong focus on products and patient care are the company’s major strengths. The company is favorably placed to play a vital role in healthcare and its transformation.

Cardinal Health has achieved an impressive dividend per share growth of 16% CAGR over the last five years. The company has increased its dividends for 33 years in a row, making it a member of the prestigious Dividend Aristocrat group.

Cardinal Health last raised its dividend payout by 3% and sports an impressive yield of 3.5%. The Medtronic portfolio acquisition will provide synergies exceeding $150 million annually by 2020 and should enable the company to keep increasing dividends in the single digit range going forward.

CAH - Revenue by Segments
Source: CAH Quarterly Reports

Alternative Healthcare Dividend Stocks

Are you keen on pharmaceuticals? or biotech? Depending on your investing strategy, there are other healthcare stocks for you to consider.

CVS - CVS Health

CVS Health Corp


MDT - Medtronic



ABC - AmerisourceBergen

AmerisourceBergen Corp


BMY - Bristol-Myers Squibb Co

Bristol-Myers Squibb Co


MRK - Merck & Co Inc

Merck & Co Inc


LLY - Eli Lilly & Co

Eli Lilly & Co


SYK - Stryker Corp

Stryker Corp


PFE - Pfizer Inc

Pfizer Inc


MCK - McKesson Corp

McKesson Corp


OMI - Owens & Minor Inc

Owens & Minor Inc


Sector Classifications

Sector classification is driven by a set of standards across North America, stock market and indexes. There is a specific company classification referred to as NAICS (North American Industry Classification System) managing a set of classifications. Statistic Canada is also a partner with defining the NAICS with company counts for different classifications.

While the company classification is critical to understand the evolution of industries, it is by far too detailed to manage for investors and all companies can be grouped under a sector. The best visual tree I could find is under Wikipedia's Global Industry Classification Standard.

Basic MaterialChemicals, Construction Materials, Containers & Packaging, Metals & Mining, Paper & Forest Products
Communication ServicesDiversified Telecommunication Services, Wireless Telecommunication Services
Consumer CyclicalAuto Components, Automobiles, Household Durables, Leisure Products, Textiles, Apparel & Luxury Goods, Hotels, Restaurants & Leisure, Diversified Consumer Services, Media, Distributors, Internet & Direct Marketing Retail, Multiline Retail, Specialty Retail
US Consumer Defensive SectorFood & Staples Retailing, Beverages, Food Products, Tobacco, Household Products, Personal Products
Canadian EnergyEnergy Equipment & Services, Oil, Gas & Consumable Fuels
Financial ServicesBanks, Thrifts & Mortgage Finance, Diversified Financial Services, Consumer Finance, Capital Markets, Mortgage Real Estate Investment Trusts (REITs), Insurance
US HealthcareHealth Care Equipment & Supplies, Health Care Providers & Services, Health Care Technology, Biotechnology, Pharmaceuticals, Life Sciences Tools & Services
US Industrial SectorAerospace & Defense, Building Products, Construction & Engineering, Electrical Equipment, Industrial Conglomerates, Machinery, Trading Companies & Distributors, Commercial Services & Supplies, Professional Services, Air Freight & Logistics, Airlines, Marine, Road & Rail, Transportation Infrastructure
Canadian Real EstateEquity Real Estate Investment Trusts (REITs), Real Estate Management & Development
US TechnologiesInternet Software & Services, IT Services, Software, Communications Equipment, Technology Hardware, Storage & Peripherals, Electronic Equipment, Instruments & Components, Semiconductors & Semiconductor Equipment
UtilitiesElectric Utilities, Gas Utilities, Multi-Utilities, Water Utilities, Independent Power and Renewable Electricity Producers

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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