3 Healthcare Stocks for Long-Term Dividend Growth

Healthcare stocks offer investors a wide variety of stocks. There are healthcare stocks that lean more toward growth versus value, high dividend yields versus dividend growth, and so on.

Healthcare also tends to perform quite well during recessionary periods. Their recession-resistant businesses and steady dividends can help reduce the severity of market downturns during recessions.

In this article, we’ll take a look at three healthcare stocks that have strong dividend track records, and that we think are great picks for those investors looking to compound wealth over the long term. The companies are:

  • Johnson & Johnson (NYSE:JNJ)
  • Medtronic (NYSE:MDT)
  • Abbott Labs (NYSE:ABT)

Johnson & Johnson (JNJ)

First on our list of healthcare stocks is Johnson & Johnson, a highly diversified company that develops, manufactures and distributes a huge range of products in various markets in healthcare globally. The company offers products through its consumer health, pharmaceutical, and medical devices segments.

Through these segments, Johnson & Johnson markets a wide variety of consumer brands such as Aveeno, Listerine, Neutrogena, Tylenol, Benadryl and many more brands that treat everyday ailments. It also has a pharmaceutical portfolio that has a suite of treatments for various immunology, cardiovascular, infectious disease, neuroscience and other applications.

Finally, its medical device business produces products for orthopedics, general surgery, contact lenses and more.

Johnson & Johnson was founded in 1886, employs more than 130,000 people worldwide, generates about $94 billion in annual revenue, and trades with a market capitalization of $433 billion.

Johnson & Johnson has one of the longest dividend increase streaks of any stock in the world, boasting a 59-year history of continuously raising its payout. This makes the stock a Dividend King and it also means that it has been a reliable dividend growth stock for generations. This, in part, is what makes the stock so attractive for income investors.

Looking forward, we see many more years of dividend increases on the horizon, as the company’s current payout is extremely safe, and because we see moderate levels of earnings growth in the coming years.

Johnson & Johnson’s payout ratio is under 45% for this year, which means the company could absorb a sizable downturn in earnings and still be able to not only afford its current dividend, but continue to raise it. When selecting dividend stocks to hold for the long term, this is a critical characteristic, and few companies have done this better than Johnson & Johnson over the years.

In addition, we see 6% earnings growth on an annualized basis in the coming years for Johnson & Johnson, meaning that over time, the pool from which it can pay rising dividends should rise as well, making it that much easier for the company to fund years of additional dividend increases.

Johnson & Johnson has the ideal mix of a very long history of dividend increases, a low payout ratio and strong earnings growth potential for investors looking for a robust healthcare dividend stock.

Johnson & Johnson has increased its dividend for over 50 consecutive years, placing it on the exclusive Dividend Kings list.

Medtronic (MDT)

Our next stock is Medtronic, a company that develops, manufactures and distributes medical therapy devices to hospitals, doctors and patients globally. The company operates four segments: cardiovascular, neuroscience, Medical surgical and diabetes.

Through these segments, Medtronic offers customers a huge variety of devices used in surgeries, monitoring of health conditions, insulin pumps, and more. Medtronic is heavily leveraged to various kinds of surgical procedures, but it is well diversified within that market.

Medtronic was founded in 1949, and today it employs about 90,000 people worldwide, generating ~$32 billion in annual revenue, and trading with a market capitalization of $152 billion.

Medtronic’s attractive traits as a dividend stock have a lot of similarity to that of Johnson & Johnson. Medtronic has a 44-year streak of consecutive dividend increases, its payout ratio is just 44% for this year, and we expect it to grow at 6% annually in the years to come.

That means that Medtronic is also resilient when recessions strike, given it has been able to boost its dividend for more than four decades, but it also means that the payout is very safe. And with earnings growth expected to move the needle in a big way over time, we think Medtronic likely has decades more dividend increases on the horizon.

Medtronic stock yields 2.2%, which is well above the market average. And, Medtronic has increased its dividend for over 40 years, which makes it a Dividend Aristocrat.

Abbott Labs (ABT)

Our finalist among healthcare stocks is Abbott, a fully integrated pharmaceutical, medical device, and nutrition company that operates globally. Abbott is known for its wide and deep pharmaceutical portfolio, which treats a huge variety of ailments. The company also has a sizable pediatric and adult nutrition business, as well as a suite of medical device for various applications. Abbott has also been a big player in Covid-19 testing since the pandemic began nearly two years ago.

Abbott was founded in 1888, employs 109,000 people across the globe, generates ~$42 billion in annual revenue, and trades with a market capitalization of $234 billion.

Like the other two stocks on our list, Abbott has an exceptional dividend increase history, which stands at 49 years. Assuming Abbott boosts its payout next year, it will join Johnson & Johnson in the ultra-exclusive Dividend Kings.

But that’s not all Abbott has to offer investors, as it also sports a very low payout ratio of just 36% for this year, and has proven to be recession resilient over time. That makes Abbott’s dividend safety outstanding, and when we combine that with the projected earnings growth rate of 4% annually, we also believe Abbott has decades of potential dividend increases in front of it.

Abbott stock does not have the highest yield around at 1.3%, but the company raises its dividend at a high rate, including a 25% dividend hike in December 2020.

Final Thoughts

When selecting dividend stocks to buy, investors are faced with a variety of choices. However, we like healthcare stocks for many reasons, particularly given inherent recession resilience and long-term earnings growth.

Johnson & Johnson, Medtronic, and Abbott Labs all offer exemplary dividend histories, low payout ratios, and moderate projected earnings growth in the years to come. For these reasons, we think all three offer investors the chance to enjoy income and growth in the years to come.

On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.

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