Three Healthcare Stocks With Compelling Dividend Yields And Growth Rates

Published Wed, 16 Apr 2014 23:00 CET by DividendYields.org

The healthcare sector offers one of the best opportunities for investors. This is because health is not a luxury, and for some people it is a constant expense in their budgets.
Over the years, several companies have joined the market in different capacities and with various distinct target markets. While biotechnology companies are considered high reward speculative opportunities, large drug manufacturers like U.S.A’s Johnson & Johnson (NYSE: JNJ) and U.K’s GlaxoSmithKline (NYSE: GSK) offer stability and continuous payout in terms of dividends.
Over the last few years these two, along with Baxter International (NYSE: BAX), have shown resilience in their quest to grow dividends and maintain compelling yields. Now, these three form some of the most attractive dividend stocks in the healthcare sector.

Div Yield Div Growth (5 Yrs) Payout Ratio Exp Earnings Growth (1 yr) Exp Earnings Growth (5 yrs)
Johnson & Johnson 2.66% 7.49% 54% 7.72% 5.96%
GlaxoSmithKline 5.73% 4.23% 66% 9.26% 9.30%
Baxter International 2.67% 15.47% 52% 6.80% 7.45%
Johnson & Johnson
The U.S-based drug manufacturer offers investors a 2.66% dividend yield, based on its current stock price of $99.20 per share. This is after cruising 22.39% over the last 12 months.
Johnson & Johnson enjoys a wide economic moat, is well diversified and offers several products related to human health and hygiene. This provides the stability needed for dividend stocks, to prevent earnings and dividends from falling massively when one business segment performs poorly.
The company’s payout ratio of 54% is within the recommended threshold of not more than 60%, which means there is enough margin of safety to maintain a healthy dividend.
Johnson & Johnson earnings are expected to grow by 7.72% over the next 12 months, and at a compound annual growth rate “CAGR” of 5.96% over the next five years. In this case, the company’s expected 7.49% dividend growth rate for the next five years implies that, at some point, it might have to increase the payout ratio.

GlaxoSmithKline
GlaxoSmithKline is probably the most attractive dividend stock in the healthcare sector. The company offers compelling dividend yield of 5.73% and almost unmatched earnings growth rates for the next five years at 9.30%. Based on these figures, the company’s dividend yield is expected to grow by 4.23%.
GlaxoSmithKline earnings per share are expected to grow by 9.26% for the next one year.
Now, based on the company’s projected dividend growth rate compared to earnings growth rate, it appears as though the payout ratio could be cut significantly. This is positive for the company as it currently pays out 66% of its earnings as dividend, which is slightly above the recommended maximum rate.
Unlike Johnson & Johnson, GlaxoSmithKline’s price is only up about 5.95% over the last twelve months. However, its huge dividend yield has been a terrific example of how dividend stocks could differ from income stocks.

Baxter International
This is the smallest of the three healthcare giants. However, its market cap of more than $40 billion makes it a giant in its own respect. Therefore, it offers significant financial stability to investors.
When compared with is counterparts, Baxter International offers the best option for investors looking to reap more in term of dividends over the next five years. Its dividend is expected to grow by an average of 15.47% over the next five years. This means that the current quarterly dividend per share of $0.49 could rise to $0.56 next year.
The company’s payout ratio of 52% is also the best among the three companies. Baxter International operates in a slightly different industry from its two counterparts.
The medical instruments and supplies provider is also expected to enjoy significant earnings growth over the next five years at about 7.45% CAGR, which again is a clear signal for sustainable dividend payments.

Conclusion

12-Month Stock Price Graph
While GlaxoSmithKline offers the best dividend yield at current prices, Baxter International appears to be a compelling candidate for that tag in the coming years.
On the other hand, Johnson & Johnson enjoys wide economic moat and the best 12-month returns for those who might consider offloading some holding for cash, compared to GlaxoSmithKline’s 5.95%, and Baxter’s 3.47%.
Overall, they all appear to be some excellent dividend stocks to consider in 2014.


Stock name Dividend Yield
Glaxosmithkline 5.83
Johnson & Johnson 2.64
Baxter International 1.02

Articles featuring Glaxosmithkline (GSK):

Parking Cash In The Large Cap 5% Dividend Club

If you're looking for an investment idea how about parking some cash among a diversified group of large cap stocks that each yield over 5% in dividends. Having a section of your portfolio dedicated to dividend stocks can provide protection in volatile markets and generate an additional income stream. If you have time on your side, reinvesting the dividends so they compound is a powerful tool which can pay off in spades down the road. I prefer large cap companies with solid financials since this... Read more

Lanny's January Dividend Income Summary

I'll say it. I am ready for winter to be over. However, I'll have to say something else. Collecting dividends never gets old! This is what is keeping the warmth during January going, as we know how hard it is to step foot outside. Cannot wait for the sun to shine a little brighter as we reflect on our dividend income from the first month of 2019! Did we all start the year off with a bang? Let's see how I did and check out my January 2019 dividend income. Dividend Income I received a total... Read more

5%+ Dividend Yield Portfolio: Profiting Handsomely From Volatility (Jan 2019 Review)

Outlook 2019 officially started with bang! While, technically, the volatility that the market has been experiencing over the past few months is entirely normal, the timing of the latest rally almost perfectly coincided with the turn of the calendar…so it is certainly nice to have the first monthly print of the year be so positive. In fact, January 2019’s 7.9% gain in the S&P 500 was its best January performance since 1987 (over 30 years!). Furthermore, the gains were not just limited to... Read more

High Yield Stocks For Investors Looking For Income Options

UK dividend payouts came within touching distance of £100 billion last year. At a time when many of us were trying to brave out the weak momentum that was pummelling prices across the board, payouts from income stocks actually stayed solid. Overall, the record £99.8 billion total payout was up by 5.1 percent on 2017, according to Link Asset Services, which tracks UK dividends. That performance was driven by robust earnings growth, some special payouts that beat expectations and the effects... Read more

5%+ Dividend Yield Portfolio: Beating The Market 2 Of The Last 3 Years (December 2018 Review)

Outlook 2018 was a tough year for investors with virtually all asset classes ending the year in the red. And ‘oh my’ was it ugly… Source: Market Watch Looking back at my 2018 prediction for calm and steady price appreciation for the first 3 quarters of the year followed by an increase in volatility in Q4 (driven by the midterms), it appears to have been pretty spot on. Of course, I thought that volatility would mean some choppy trading, not a 20% decline… so I’ll only award... Read more