3 Health Care Stocks to Buy Now for Decades of Dividends

If you are looking for stable investments in the health care industry that will very likely provide decades of dividend growth, consider the three stocks outlined in this article.

More people are considering health care a basic human right. It really doesn't matter how you personally feel on the subject. Put politics aside, and you will see that's where opinion is trending.

On top of that, the global population is aging, especially in the developed world. More elderly means more expensive health care will be required in coming years. This may put a strain a strain on society as a whole, but it is great for the health care sector.

Another compelling aspect of the health care industry is the positive impact of technology. In many industries (think newspapers), technology advances hurt the largest players in the industry. Health care is different.

As technology makes it possible to save more lives, the largest health care corporations get more-and-more health products and treatments to sell. Advancing technology opens up new revenue streams for health care corporations because it allows for the treatment of previously untreatable illnesses.

It may not surprise you that some of the most stable, longest paying dividend stocks are in the health care sector.

Of the three discussed in this article, one has increased dividend payments for 30 consecutive years, another 40 years, and the final stock has increased its dividend payments for more than 50 consecutive years. That type of stability is very rare.

Decades of Dividends Health Care Stock: Medtronic

MDT Chart MDT data by YCharts

Medtronic (MDT) is the global leader in implantable biomedical devices. The company has a market cap of over $100 billion, making it the 11th largest publicly traded health care stock in the U.S.

The company was founded in 1949. Medtronic has an impressive streak of 38 consecutive years of dividend increases.

Medtronic's operations are split into four segments:

  • Diabetes generates 6% of revenues
  • Cardiac & Vascular generates 35% of revenues
  • Restorative Therapies generates 25% of revenues
  • Minimally Invasive Therapies generates 34% of revenues

Medtronic acquired Covidien in January of this year. The move has created significant synergies and possibilities for margin improvements through cost-cutting. In addition, Medtronic has been rapidly acquiring smaller health care companies to augment its growth.

In total, expect Medtronic to deliver earnings-per-share growth of between 7% and 9% a year over the next several years. In addition to this growth, the company currently offers investors a 2% dividend yield. This yield combined with expected growth gives investors estimated future total returns of 9% t 11% a year.

Medtronic stock appears to be trading around fair value at current prices. Medtronic has an adjusted price-to-earnings ratio of 18.3. Compare this to the S&P 500's current price-to-earnings ratio of 22.0.

Recessions do not significantly impact Medtronic. The company's products remain in demand throughout the economic cycle. To illustrate this point, take a look at Medtronic's earnings-per-share growth through the Great Recession of 2007 to 2009:

  • 2007 earnings-per-share of $2.61
  • 2008 earnings-per-share of $2.92 (12% increase)
  • 2009 earnings-per-share of $3.22 (10% increase)

Medtronic's combination of a reasonable price-to-earnings ratio, stability through market cycles, and above-average total return prospects make it a compelling purchase at current prices.

ABT Chart ABT data by YCharts

Decades of Dividends Health Care Stock: Abbott Laboratories

Abbott Laboratories (ABT) is the global leader in adult nutrition. The company owns the following well known nutrition brands: Similac, Pedialyte, and Ensure (among others). Abbott Laboratories' nutrition products are likely the most recognizable to United States readers. The company actually operates in 4 segments:

  • Diagnostics which generates 23% of revenue
  • Nutrition which generates 33% of revenue
  • Medical Devices which generates 25% of revenue
  • Branded Generic Pharmaceuticals which generates 19% of revenue

Abbott Laboratories has a long corporate history. The company was founded in 1888. Abbott stocks is the smallest of the three companies in this article, but it is still a giant corporation, with a market cap of $68 billion currently.

All of the companies examined in this article have ultra-long streaks of dividend increases, and Abbott Laboratories is no exception. The company has paid increasing dividends for an 43 consecutive years. It's dividend payments should continue to rise far into the future.

Abbott Laboratories stock is offering investors a dividend yield of 2.1%, but its real total return potential comes from its growth. Expect Abbott Laboratories to compound its earnings-per-share by around 10% a year over the next several years.

The company's above average growth potential is a result of its geographic diversity. Abbott Laboratories has positioned itself to take advantage of emerging market growth better than most health care companies. The company's earnings-per-share growth combined with its current 2.1% dividend yield give investors an expected total return of approximately 12% a year going forward.

In addition, Abbott Laboratories has a reasonable adjusted price-to-earnings ratio of 20.6. The company appears to be fairly valued at this time, especially when compared to the S&P 500's price-to-earnings ratio of 22.0.

JNJ Chart JNJ data by YCharts

Decades of Dividends Health Care Stock: Johnson & Johnson

Johnson & Johnson (JNJ) is the gold standard in the health care industry. The company is the largest publicly traded health care corporation in the world based on its $283 billion market cap.

Johnson & Johnson has increased its dividend payments for 53 consecutive years. This makes the company one of only 17 'Dividend Kings'; dividend stocks with 50+ years of consecutive dividend increases. Click here to see all 17 Dividend Kings.

What could be even more impressive than Johnson & Johnson's dividend streak is its earnings-per-share growth streak. The company has seen adjusted earnings-per-share rise every year for 31 consecutive years, an example of extreme stability. Its diversified health care operations are what give the company its high level of stability.

The company's three segments are: Pharma, Medical Devices, and Consumer. The Pharma segment is actually Johnson & Johnson's largest segment. Investors are likely most familiar with the company's Consumer segment, which owns the following well-known brands (among others): Tylenol, Band-Aid, Zyrtec, Aveeno, Listerine, Neutrogena, and Motrin.

Johnson & Johnson has grown its earnings-per-share at 6.1% a year over the last decade. Expect this stable company to continue growing its earnings-per-share at around 6% a year. This growth combined with the company's 2.9% dividend yield give investors expected total returns of around 9% a year.

As always, valuation matters. Johnson & Johnson stock is currently trading for an adjusted price-to-earnings ratio of just 17.0. The company's reasonable valuation, high dividend yield, and low-risk business model make Johnson & Johnson a favorite of The 8 Rules of Dividend Investing. The company makes a compelling purchase at current prices for investors looking for decades of income growth ahead.

This article is commentary by an independent contributor. At the time of publication, the author held a positions in ABT.

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