3 Healthcare Dividend Stocks to Buy Now
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 population of 65-plus year olds. This means demand for healthcare is only set to grow going forward, at a rate above GDP growth.
For investors, the opportunity is in the many blue-chip stocks in healthcare, which will provide shareholders with long-term growth and dividends. These three healthcare stocks are attractive today for their low valuations, solid yields and high total return potential.
1. Becton, Dickinson and Company
Becton, Dickinson and Company (BDX) is a global leader in the medical supply industry. The company was founded in 1897 and has 75,000 employees across 190 countries. It generates about $20 billion in annual revenue, with approximately 43% of revenues coming from outside of the U.S.
The company is composed of three segments. Products sold by the medical division include needles for drug delivery systems and surgical blades. The life sciences division provides products for the collection and transportation of diagnostic specimens. The intervention segment includes several of the products produced by what used to be Bard, which was a major acquisition for the compnay in 2017.
On May 2, 2024, BDX released earnings results for the second quarter of fiscal year 2024. For the quarter, revenue grew 4.6% to $5 billion, which was slightly ahead of estimates. On a currency neutral basis, revenue grew 4.7% year over year. Adjusted earnings per share of $3.17 compared favorably to $2.86 in the prior year and was $0.20 more than expected.
For the quarter, U.S. grew 6.3% while international was up 2.6% (up 2.4% on a reported basis). The medical segment grew 3.7% to $2.45 billion as all businesses were up year over year. Mediation management solutions was the top performer, thanks to strong growth in infusion systems. Life science revenue was up 2.3% to $1.3 billion as gains in integrated diagnostic solutions was only partially offset by weaker results in biosciences. Interventional grew 9.5% to $1.29 billion, driven once again by strength in urology and critical care.
The company provided an updated outlook for fiscal year 2024 as well. It still expects organic growth in a range of 5.5% to 6.25%. Adjusted earnings per share are now projected in a range of $12.95 to $13.15, up from $12.82 to $13.06 previously.
BDX has one of the longest dividend growth streaks in the healthcare sector. In 2023, BDX increased its quarterly dividend by 4.4% to $0.95, extending its dividend growth streak to 52 consecutive years. BDX stock currently yields 1.6%.
2. Cigna Corporation
Cigna (CI) is a leading provider of insurance products and services including dental, medical, disability and life insurance that it provides through employer-sponsored, government-sponsored and individual coverage plans. Cigna operates four business segments, including Evernorth, which provides pharmacy services and benefit management, U.S. medical, which provides commercial and government health insurance, international markets and group disability. Evernorth contributes 70% of annual revenues while Cigna Healthcare accounts for 24%. Overall, Cigna has annual revenues of approximately $235 billion.
In the first quarter of 2024, revenue grew 23.2% to $57.3 billion, which was $670 million above estimates. Adjusted earnings-per-share of $6.47 compared to adjusted earnings-per-share of $5.41 in the prior year, and was $0.25 better than expected. For the quarter, total pharmacy customers increased 4.3% to 122.8 million. Adjusted revenue for the Evernorth segment, the largest within the company, grew 28% to $46.2 billion due to gains in specialty and care services. Adjusted revenue for Cigna Healthcare was up 4% to $13.3 billion, due once again to premium rate increases.
Cigna also provided a revised outlook for 2024. Revenue is expected to be least $235 billion for the year while adjusted earnings-per-share should be at least $28.40 for the year. The company has a solid growth track record. In the past 10 years, earnings-per-share have a compound annual growth rate of 12.9%. One reason that earnings have a CAGR in the double-digit range is that the need for pharmacy services and healthcare plans will increase as more people age.
Cigna has durable competitive advantages. The company is one of the largest names in its industry, giving it a size and scale that is hard to match. Cigna’s acquisition of Express Scripts appears to have been a solid move, strengthening the company’s presence in its pharmacy business. Perhaps most important, an aging demographic will need increased pharmacy and medical services, giving Cigna an incredibly large pool of potential customers.
Cigna is a strong dividend-growth company. In February 2024, Cigna increased its quarterly dividend by 14% to $1.40. The dividend is highly secure, with an expected payout ratio of 20% for 2024, which leaves significant room for continued increases. CI stock currently yields 1.7%.
3. Perrigo Company
Perrigo (PRGO) is a healthcare company headquartered in Ireland. It operates as a manufacturer of over-the-counter consumer products. Its consumer self-care Americas segment is comprised of the U.S., Mexico and Canada consumer healthcare businesses. The consumer self-care international segment includes branded consumer healthcare business primarily in Europe, but also in Australia and Israel. The company generates about $4.7 billion in annual revenue.
In the first quarter of 2024, revenue decreased 8.4% to $1.08 billion. Adjusted earnings per share of $0.29 compared unfavorably to $0.45 in the prior year, but this was $0.06 ahead of estimates. Organic revenue declined 7% for the period. Consumer self-care Americas’ organic sales was lower by 14.6% due to weaker infant formula results and a product prioritization. Consumer self-care international’s organic growth improved 7%. Upper respiratory product sales declined more than 20% due to a weaker cold and cough season while skin care and digestive health were both up by double-digits.
Perrigo reaffirmed its prior outlook for 2024 as well. The company still expects organic revenue to increase 1% to 3% and adjusted earnings-per-share to be in a range of $2.50 to $2.65 per share for the year. Cost savings will help boost earnings per share as Perrigo announced a cost savings program in Q4 2023 called “Project Energize” that is projected to create pre-tax savings of $140 million to $170 million by 2026. Through the end of the 2024 first quarter, the company had realized $17 million of savings.
The company does have a significant competitive advantage. Perrigo is one of the largest manufacturers of OTC products, which gives it a leading position in its key markets. It also should perform well in a recession as these product categories tend to hold up, even if the economy enters a downturn.
As a result, Perrigo has a long history of dividend growth. In February 2024 it announced a 1.1% quarterly dividend increase to $0.276, extending the company’s dividend growth streak to 22 consecutive years. PRGO stock currently yields 3.9%. The dividend appears secure with a payout ratio expected to be below 50% for 2024.
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At the time of publication, Ciura had no positions in any securities mentioned