In this article we analyze 10 best healthcare dividend stocks. Our thesis scrutinizes top healthcare companies with solid product pipelines as well as a strong history of dividends, with over 2% yield and no cuts in the last 5 years (including 2020). Click to skip ahead our discussion and see the 5 Best Healthcare Dividend Stocks.
The coronavirus crisis ushered in an era of dramatic volatility for healthcare stocks. While major healthcare companies like Pfizer Inc. (PFE), Moderna Inc (NASDAQ: MRNA) and AstraZeneca plc (NASDAQ: AZN) became the center of attention as the world held its breath for a vaccine, major hospital operators, pharmacies and health services companies suffered losses amid declining elective surgeries, emergency department and clinic closures. According to a study conducted by the American Hospital Association, American hospitals and health systems suffered a $202.6 billion loss in a period of four months because of the coronavirus crisis. Despite all of this, S&P 500 Health Care Sector Index is up over 7.8% year to date. Most of the losses faced by the healthcare industry were temporary, and the industry retains its deep organic roots for long-term growth.
Should I Still Invest in Healthcare Stocks?
Healthcare remains one of the biggest and lucrative industries to invest in. Evolving viruses, ageing population and a need for swift innovation is driving growth in the healthcare industry. National health spending in the U.S. is expected to rise at an average annual rate of 5.4% from 2019 through 2028, reaching $6.2 trillion. Innovation, research and product development is direly needed in all segments of the healthcare industry, including diagnostics and therapeutics.
But perhaps the biggest driver of growth in healthcare stocks is technology, which is set to transform the healthcare industry with artificial intelligence, Internet of Things and Big Data. To give you a sneak peek of the enormous innovation on the horizon for the industry, here are a few areas which are going to transform healthcare:
- Companies working on drone delivery of medicines
- Using stem cell to create replacement beta cells that produce insulin for diabetes treatment
- Pocket-sized ultrasound devices
- Wearable health devices
- Avoiding invasive heart surgeries by using 3D digital heart-like devices for detailed examination and scenario testing
- Using AI for early cancer detection
- Using computer imaging and scanning for detection of tumors
Data from Access to Medicine Foundation which analyses product pipelines of 20 biggest R&D-based pharmaceutical companies show that major healthcare companies are working on 1,314 key projects, which include treatment for chronic and life-threatening diseases. A major chunk of these products are from the non-communicable diseases category, which includes chronic or lifestyle diseases such as heart disease and diabetes. Cancer dominates the R&D pipelines with over 600 projects. Companies are also racing to develop treatments autoimmune, inflammatory and musculoskeletal diseases. Over 54 million Americans suffer from arthritis, with 24 million having to limit their life activities because of the autoimmune disease.
Several healthcare companies are also working on rare disease treatments, an industry whose worth will reach $169 billion by 2022. These diseases — involving human nervous system, heart, skin, brain, muscle and blood — are affecting millions of Americans.
In its U.S. healthcare outlook report, Moody’s said that healthcare companies are expected to generate revenue in 2021 above 2019 levels amid medical product innovation, increasing demand and favorable demographics.
"The worst case scenario for most US healthcare companies did not materialize in the second quarter of 2020. Among public companies that have reported their financial results, revenue drops in April were muted by a rapid recovery in volumes in late May and June on the back of pent-up demand for services as lock-downs were lifted,” Moody’s analyst Jessica Gladstone said in the report.
Deloitte also believes that healthcare sector will see several opportunities in the future, as the firm expects the industry to grow at a CAGR of 5% from 2019 through 23. According to Deloitte, some catalysts for healthcare stocks include aging population, rising prevalence of chronic diseases, infrastructure investments, technological advancements, evolving care models, increasing labor costs amidst workforce shortages, and the expansion of health care systems in developing markets.
How To Choose Healthcare Stocks for Investment?
The healthcare industry is huge and it’s crucial to put your money in the right stocks if you really want to make big profits. While selecting healthcare stocks to invest, there could be a lot of factors to analyze. But for this article we will talk about the most popular healthcare stocks among hedge funds that pay at least 2% dividend, with no dividend cuts in the last 5 years. Dividend investing is ideal if you are ready to wait and want a steady income source. If a famous healthcare company is paying over 2% dividend that means it is stable and has an investor-friendly approach.
Financial markets are becoming volatile by the day and it's extremely important to do your research before you invest your money. Not even so-called "experts" are safe from the surprises the market can throw at you. The hedge fund industry’s reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 78 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Dividend investing is one of the solid and proven ways of making wealth. Waiting for longer periods of time without any kind of income becomes too difficult for average investors. In dividend investing, you just sit and wait out the market, while cash rolls in. Additionally, you can reinvest your dividends in cheap stocks to further expand and diversify your portfolio. Now, let's take a look at the 10 best healthcare dividend stocks to buy according to hedge funds.
10. Cardinal Health Inc (NYSE: CAH)
Dublin, Ireland and Ohio-based Cardinal Health Inc (NYSE: CAH) has a dividend yield of 3.61%, with no dividend cuts in the last 5 years. On Dec. 14, Cardinal was selected by the Ohio Department of Health for the distribution COVID-19 vaccines.
In November, Cardinal beat analysts’ forecasts for fiscal first quarter, reporting a 4.6% -year-over-year revenue growth. The company also increased fiscal 2021 adjusted EPS outlook to $5.65-$5.95, versus prior guidance of $5.25-$5.65.
Richard S. Pzena’s Pzena Investment Management owns 3,105,881 shares of Cardinal Health, which have a total worth of over $145.82 million. Overall, 45 hedge funds in Insider Monkey’s database are bullish on Cardinal Health, with total investments worth over $1 billion
9. Amgen, Inc. (NASDAQ: AMGN)
Amgen ranks 9th in our list of the 10 best healthcare dividend stocks. California-based Amgen on Dec. 17 upped its quarterly dividend per share to $1.76, a 10% increase. The stock has a forward dividend yield of 3.10%. Amgen’s Buy rating was reiterated by Goldman Sachs analyst Terence Flynn on Dec. 15.
Amgen recently won FDA approval for RIABNI, its treatment of adults with Non-Hodgkin's Lymphoma and Chronic Lymphocytic Leukemia. In another victory for Amgen, the FDA in early December designated the company’s sotorasib a Breakthrough Therapy for the treatment of advanced or metastatic non-small cell lung cancer (NSCLC) with KRAS G12C mutation.
As of the end of the third quarter, Cliff Asness’ AQR Capital Management is the biggest shareholder in the company, with over 1.2 million shares, worth over $300 million.
Amgen shares are down over 5% year to date.
8. Eli Lilly And Co (NYSE: LLY)
Eli Lilly ranks 8th on the list of 10 best healthcare dividend stocks. The company on Dec. 14 increased its dividend by 15%, to $0.85 The stock was trending recently after the company upped its full-year 2020 revenue and earnings guidance, and provided a positive outlook for 2021. The company now has a forward dividend yield of 2.01%. Goldman Sachs analyst Terence Flynn increased his price target for the company to $209 from $183, citing guidance hikes and updates on product pipeline.
The company also revealed its plans to acquire Prevail Therapeutics (NASDAQ:PRVL).
Eli Lilly (NYSE:LLY) also plans to start a new pragmatic study of bamlanivimab in high-risk COVID-19 in New Mexico.
At the end of the third quarter, 60 hedge funds in Insider Monkey’s database of smart money held positions in LLY, up from 51 funds in the second quarter.
7. CVS Health Corp (NYSE: CVS)
CVS ranks 7th in our list of the 10 best healthcare dividend stocks. CVS Pharmacy’s owner has a dividend yield of 2.91%. The company reported a 3.5% year-over-year increase in revenue for the third quarter. The company opened 4,000 testing sites for coronavirus tests and conducted over 6 million COVID-19 tests. CVS recently started its COVID-19 vaccine program for the residents of long-term care facilities. The company was also chosen by the Department of Health and Human Services to give Eli Lilly's (NYSE:LLY) COVID-19 treatment bamlanivimab to patients in nursing homes and long-term care facilities.
In its Q3 2020 Investor Letter, Bill Miller’s Miller Partners shed some light on why they believe CVS stock will gain value in the future. Here’s what the hedge fund said:
"CVS is a name we owned earlier but exited in the COVID hit to deploy funds to names offering more significant near term recovery potential. CVS lagged in the ensuing recovery but we still think it’s an undervalued mix of businesses. If you value you the pieces, a healthcare insurance company, a pharmacy benefits manager, and a retail pharmacy, you get values roughly 50% greater than the current stock price. We think its vertical integration strategy around lowering the cost of healthcare through “Health Hubs” offers you free option value at current prices. We used long-term call options which we thought offered favorable risk-return"
6. Gilead Sciences, Inc. (NASDAQ: GILD)
California-based Gilead focuses on the development of antiviral drugs used in the treatment of HIV, hepatitis B, hepatitis C, and influenza. Gilead’s famous drug Remdesivir has been in the limelight since several studies showed effectiveness of the drug in the treatment of COVID-19 patients. The European Medicines Agency's advisory group CHMP recently gave positive comments about the drug and recommended its marketing authorization.
Gilead has a dividend yield of 4.65%. The company announced an 8% in quarterly cash dividend in February.
In its Q3 2020 Investor Letter, hedge fund Tao Value talked about Gilead and highlighted the company’s future outlook and possible growth catalysts. Here’s what the fund said:
“On the detracting side, our largest detractor is Gilead Sciences (ticker: GILD), which dragged 104 bps. Gilead reported a lackluster Q2, falling short of earning estimate by relatively large margin. It however it raised its full year revenue and earning guidance, possibly due to incremental Remdesivir revenue in 2nd half year. Gilead also announced a big acquisition of Immunomedics for $21 billion. Through this acquisition, Gilead will add Immunomedics’ crown asset Trodelvy to its oncology pipeline and expect it could be significantly accretive to earnings since 2023. The share price decline might be due to COVID19 themed traders seek exit after a good run. I didn’t see changes to our original thesis.”
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