Facing an uncertain market environment, investors ought to consider the top healthcare stocks that pay dividends. Sure, the Federal Reserve may be in a position to facilitate a soft landing for the economy, per bullish analysts. Genuinely, I hope that’s the case. But you can wish on one hand and, well, you know the rest.
Primarily, the core benefit of top healthcare stocks that pay dividends centers on the “permanent” relevance of the underlying sector. To be clear, all sectors suffer the vulnerability of obsolescence sometime down the road. However, unless you anticipate a future where all diseases are eradicated, there’s a good chance healthcare will stick around.
Second, top healthcare stocks that pay dividends naturally deliver passive income. Yes, the income itself can help bolster one’s portfolio, no doubt about it. But just the very fact that companies pay such dividends typically underscore consistent, predictable business models. With ambiguity being the rising theme of the moment, these are the top healthcare stocks that pay dividends.
The UnitedHealth (UNH) headquarters in Minnetonka, Minnesota.
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A multinational managed healthcare and insurance provider, UnitedHealth (NYSE:UNH) is one of the most commonly cited top healthcare stocks that pay dividends. Undeniably, the company plays a significant role in the U.S. healthcare system thanks to its extensive range of services and vast customer base. As a result, it levers much influence on industry trends, costs, and service delivery.
Financially, the company might not be particularly remarkable. For example, UNH trades at a forward earnings multiple of 18.24, which is extremely high. At the same time, in exchange for that lofty premium, you get a consistently profitable enterprise. In addition, UnitedHealth’s return on equity (ROE) pops at 27.14%, beating out 84.21% of its rivals.
Regarding passive income, UNH carries a forward yield of 1.48%, which admittedly isn’t that generous. Nevertheless, its payout ratio sits at just under 27%. This provides confidence in yield sustainability. Finally, analysts peg UNH a strong buy with a $572.83 price target, implying over 12% upside potential.
Cardinal Health (CAH)
Cardinal Health (CAH) sign with bushes in front of it
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Another multinational healthcare services firm, Cardinal Health (NYSE:CAH) ranks among the top healthcare stocks that pay dividends based on revenue generation. Based in Dublin, Ohio, Cardinal specializes in the distribution of pharmaceuticals and medical products. Per its public profile, the company serves more than 100,000 locations. Since the beginning of this year, CAH gained a bit over 13% of its equity value.
As with some of its rivals, Cardinal doesn’t exactly offer the most sterling financials ever. Notably, CAH trades at a forward earnings multiple of 12.98X. That’s a bit lower than the sector median of 13.97x but not by a whole lot. Still, the main positive here may be its top-line expansion. Its three-year revenue growth rate clocks in at 14.5%, above 78.57% of its peers.
As for passive income, Cardinal Health posts a forward yield of 2.31%. Primarily, the takeaway here is that the company commands a history of 38 years of consecutive dividend increases. Lastly, analysts rate CAH a moderate buy with a $98.89 target, implying nearly 14% growth.
AbbVie (ABBV)
Closeup of AbbVie (ABBV) building corporate office, an American biopharmaceutical company with its headquarters in Lake Bluff, Illinois, USA
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A pharmaceutical giant, AbbVie (NYSE:ABBV) commands a diverse lineup of products for diseases. Among its most well-known therapeutics is Humira. However, the company has also made several strategic acquisitions to bolster its product portfolio. In particular, I’m fascinated with the Allergan buyout, which gives AbbVie control over Botox. Given society’s ultra-focused value on youth, Botox could be a huge moneymaker.
Financially, ABBV symbolizes one of the top healthcare stocks that pay dividends because of its attractive valuation. Since the start of the year, ABBV dipped more than 9%. I think that’s a mistake, but whatever. The red ink now allows contrarian investors to pick up ABBV at only 13.41x forward earnings. Enticingly, this makes AbbVie rank favorably lower than 60.16% of its peers.
Regarding passive income, AbbVie also sports a forward yield of 4.02%. That’s well above the healthcare sector’s average yield of 1.58%. Also, the payout ratio is reasonable at 53.31%. To close, analysts peg ABBV as a moderate buy with a $169.50 target, implying 15% upside.
Johnson & Johnson (JNJ)
Negative Press Presents a Buying Opportunity with JNJ Stock
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One of the top healthcare stocks that pay dividends – or by any other measure – Johnson & Johnson (NYSE:JNJ) needs no introduction. Recently, the company spun off its consumer healthcare products unit, allowing it to concentrate on its pharmaceutical and medical technology businesses. However, investors so far aren’t all that impressed with JNJ. Since the January opener, shares slipped almost 13%.
Is the red ink a mistake? On the financials, the move downward contributed to JNJ being closer to a solid deal. For example, shares now trade at a forward earnings multiple of 14.25x. In contrast, the drug manufacturing industry sports a forward price-earnings ratio of 15.13x. However, for the long haul, I’m focused on strong margins and consistent profitability.
Such robust stats play strongly into J&J’s forward yield, which comes in at 3.06%. That’s a solid rate of passive income compared to the industry. Also, the company has enjoyed 62 years of consecutive dividend increases. Turning to Wall Street, analysts rate JNJ a moderate buy with a $178.64 target, implying 15% upside.
Patterson Companies (PDCO)
An image of a phone displaying the Patterson Companies, Inc. (PDCO) logo
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A medical supplies conglomerate, Patterson Companies (NASDAQ:PDCO) primarily concentrates on the veterinary and dental products segments. Both specialties arguably make PDCO one of the top healthcare stocks that pay dividends. For example, the American Pet Products Association continues to release industry data that shows veterinary demand rising. As well, proper dental care is essential to overall wellbeing.
Since the beginning of the year, PDCO gained just over 7%, which is a modest figure. As a result, an argument can be made that it’s undervalued. Right now, shares trade at a forward multiple of 11.94x. In contrast, the underlying medical distribution industry sports a forward PE ratio of 13.97X. This stat ranks favorably lower than 70.59% of the competition.
Heading over to passive income, Patterson carries a forward yield of 3.49%. Notably, that’s also quite higher than the 1.58% average of the broader healthcare space. As well, the payout ratio sits comfortably at 38.76%. Looking to the Street, analysts rate PDCO a moderate buy with a $36.60 target, implying almost 23% growth.
Medtronic (MDT)
Medtronic (MDT) sign outside office building representing healthcare stocks
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Heading over to the riskiest ideas of top healthcare stocks that pay dividends, Medtronic (NYSE:MDT) is a medical device company. Earlier this year, the company suffered serious questions about its growth projections. More recently, MDT managed to swing higher – before slipping conspicuously – based on strong fiscal first-quarter results and boosted guidance. In the trailing month, however, MDT is down almost 5%.
Naturally, prospective investors will want to carefully consider exposure to Medtronic. Over the past three years, its operational stats haven’t been exactly lighting up the board. That said, for contrarians, MDT now trades at a forward multiple of 15.04x. Enticingly, this stat comes in lower than 72.32% of its peers in the medical devices and instruments sector.
Turning to passive income, Medtronic sports a forward yield of 3.61%. Notably, the company commands 47 years of consecutive dividend increases. As well, the payout ratio sits at 50.39%. Lastly, analysts peg MDT as a moderate buy with a $94 target, implying nearly 23% upside.
CVS Health (CVS)
The front sign for a CVS Pharmacy, CVS stock
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One of the most recognizable names among top healthcare stocks that pay dividends, CVS Health (NYSE:CVS) owns CVS Pharmacy, a popular retail pharmacy chain. As well, it owns a pharmacy benefits manager (Caremark) and Aetna, a health insurance provider. Still, significant competitive pressures have pressured CVS stock, with investors wondering about its viability.
Since the start of the year, shares lost more than 25% of equity value so the concerns are legitimate. Obviously, you want to think carefully about heavy exposure to this risky idea. Nevertheless, for contrarians, it’s worth pointing out that CVS now trades at a forward earnings multiple of 8.1X. This stat ranks lower than 77.78% of its peers in the healthcare plans industry.
Looking at passive income, CVS commands a forward yield of 3.49%, which on the surface is quite attractive. Also, the payout ratio sits at 28.16%, providing some confidence for yield sustainability. On a final note, analysts peg CVS as a strong buy with a $91.53 target, implying over 32% upside.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
