3 Blue Chip Healthcare Dividend Stocks for Long-Term Returns
For investors, many blue chip stocks in healthcare provide shareholders with long-term growth and dividends.
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The U.S. healthcare sector is attractive for long-term investors, because the industry is set to benefit from a major growth tailwind — the aging population.
The U.S. is an aging country with a very large 65+ population. This means demand for healthcare is only set to grow going forward, at a rate above GDP growth.
For investors, the opportunity is the many blue chip stocks in healthcare that will provide shareholders with long-term growth and dividends. These three stocks are attractive today for their valuations and total return potential.
Healthcare Dividend Stock #1
Bristol-Myers Squibb BMY is a leading drug maker of cardiovascular and anti-cancer therapeutics, with annual revenues of about $47 billion. The company’s competitive advantage is its ability to either create (through research & development) or acquire patents for pharmaceuticals with high potential revenue. Bristol-Myers' top three selling pharmaceuticals, Revlimid, Opdivo and Eliquis, have shown solid growth rates and are expected to see high peak annual sales.
On February 2, Bristol-Myers announced fourth-quarter and full-year results. For the quarter, revenue inched higher by 0.6% to $11.48 billion, which was $280 million more than expected. Adjusted earnings per share of $1.70 compared to $1.82 in the prior year and was $0.12 ahead of estimates.
For 2023, revenue decreased 2.6% to $45 billion while adjusted EPS of $7.51 compared to $7.70 in the prior year. Adjusting for unfavorable currency exchange, revenue was higher by 1% for the quarter, but lower by 2% for the year.
For the quarter, U.S. revenues increased 1% to $8.0 billion while International was unchanged. Much of the decline was due to the result of generic competition for Revlimid, which was down 36% to $1.45 billion. Eliquis, which prevents blood clots, increased 7% to $2.87 billion.
Bristol-Myers provided guidance for 2024 as well. The company expects revenue to grow by a low single-digit percentage. Adjusted EPS are projected to be in a range of $7.10 to $7.40 for the year.
The company has increased its dividend for 17 consecutive years. The stock has a low dividend payout ratio of 33% for 2024, which indicates a safe dividend.
BMY stock has a current dividend yield of 4.9%.
Healthcare Dividend Stock #2
CVS Health Corp. CVS is an integrated healthcare services provider that operates a pharmaceutical services business, along with the country’s largest chain of pharmacies. The company operates more than 9,900 retail locations, 1,100 medical clinics, and services more than 102 million plan members. CVS generates annual revenues of about $323 billion.
On February 7, CVS announced fourth-quarter and full-year results. For the quarter, revenue grew 11.9% to $93.8 billion, topping estimates by $3.08 billion. Adjusted EPS of $2.12 compared to $1.99 in the prior year, and was $0.13 better than expected. For 2023, revenue increased 10.9% to $357.8 billion while adjusted EPS of $8.74 compared to $9.03 in the prior year.
Revenues for Health Services, formerly known as Pharmacy Services, increased 12.3% for the quarter, with total pharmacy claims processed inching up 0.1%. Revenues for the Pharmacy & Consumer Wellness segment, formerly known as Retail/LTC segment, grew 8.6% as prescriptions filled were up 1.9% to 431.5 million. Total same-store sales grew 11% with Pharmacy up by 15.5% compared to the prior year. Revenues for Health Care Benefits increased 16.1%, while total memberships grew 5.2% to 25.7 million.
The company has compounded its earnings and dividends at annualized rates of 7.6% and 9.2%, respectively, over the last decade. The acquisition of Aetna, which had nearly 40 million members at the time of purchase, offered CVS a significant increase in the number of potential customers. It is also a positive that the company was able to pay down a sizeable amount of debt in recent quarters.
CVS’s most compelling competitive advantage is its entrenched position in the pharmaceutical retail industry. The industry is highly regulated, which makes it difficult for new competitors to enter into the industry and gain market share. In addition, the company is one of the largest pharmacies in the United States.
CVS stock has a current dividend yield of 3.8%.
Healthcare Dividend Stock #3
UnitedHealth Group UNH offers global healthcare services to tens of millions of people via a wide array of products. The company has two major reporting segments: UnitedHealth and Optum. The former provides global healthcare benefits to individuals, employers, and Medicare/Medicaid beneficiaries. The Optum segment is a services business that seeks to lower healthcare costs and optimize outcomes for its customers. UnitedHealth’s market capitalization is $480 billion, and it produces about $400 billion in revenue annually.
UnitedHealth posted fourth-quarter and full-year earnings on January 12, and results were better than expected on both the top and bottom lines. Adjusted EPS came to $6.16 for the quarter, 17 cents better than expected. Revenue soared 14% year-over-year to $94.4 billion, beating estimates by a staggering $2.22 billion. UnitedHealthcare posted 12% growth for the quarter, coming in at $70.8 billion in revenue. The membership base actually declined slightly from the third quarter to 52.75 million. This was due to a decline of about 0.3 million members in its Medicaid business from ongoing eligibility reviews.
The Optum business saw revenue soar 24% higher for the full year as it continues to be the primary driver of growth. For the year, the combined company’s medical care ratio rose to 83.2% from 82.0%, which was attributable to higher demand for outpatient care. However, the company kept its operating cost ratio steady at 14.7%, so damage to operating margins was minimized.
UnitedHealth’s dividend is ultra-safe today. At only 27% of earnings, UnitedHealth has tremendous flexibility in terms of returning capital to shareholders. Its outstanding earnings growth should only strengthen this over time.
UnitedHealth’s competitive advantage is in its gargantuan scale as well as its deeply entrenched customers with high switching costs. Like a utility, health and wellness providers have high switching costs, accruing significant benefits to incumbents like UnitedHealth. It is also quite resistant to recessions as its services are necessities in most cases. Optum remains an outstanding growth engine as well as it continues to outperform UnitedHealthcare.
UNH has increased its dividend for 14 years and currently yields 1.6%.
At the time of publication, Ciura had no positions in any securities mentioned.