3 Healthcare Stocks for 3%+ Dividend Yields

When investors are searching for their next dividend stock purchase, they have countless options. However, some sectors lend themselves better to dividend longevity than others, with one example being healthcare. Certain industries are more cyclical with economic activity -- such as construction -- which makes company earnings results more volatile, and therefore makes reliable and growing dividend payments more difficult. On the other hand, there are many blue-chip stocks from the healthcare sector, with secure dividends even in recessions. Healthcare tends to function well irrespective of economic conditions, and in this article, we'll discuss three healthcare companies that all sport dividend yields of at least 3%. Merck & Company Our first pick is Merck , a developer and distributor of pharmaceutical and animal health products globally. The pharmaceutical business offers human health products in the areas of oncology, hospital acute care, immunology, neuroscience, virology, cardiovascular, diabetes, women's health, and more. The animal business develops, manufactures, and markets a range of veterinary products. Merck was founded in 1891, generates about $47 billion in annual revenue, and trades with a market capitalization of $193 billion. Merck reported second-quarter earnings on July 29, and results were weaker than expected. The company reported sales from continuing operations of $11.4 billion, a 22% improvement year over year. Excluding gains from forex translation, sales were up 19% as the company continues to recover from the demand dip associated with the pandemic in 2020. Keytruda sales were up 23% to $4.2 billion, Gardasil sales were up 88% to $1.2 billion, and animal health sales were up 34% to $1.5 billion. Earnings per share on an adjusted basis were $1.31 in the second quarter. The company noted it completed its spinoff of certain women's health assets into Organon, which is now a separate publicly traded company. Merck received $9 billion in proceeds from the spinoff. The company now expects about $47 billion in revenue this year, and expects adjusted EPS of $5.52 at the midpoint of the new guidance range. We see Merck producing 5% annual earnings growth, the product of a slightly lower share count and gradually rising revenue, combined with the potential for modest margin gains. We see fair value at 15 times earnings, but the shares recently traded at just 13.6 times earnings, meaning we expect a small tailwind to total returns from the valuation. Finally, the stock is yielding 3.5% today, nearly three times that of the S&P 500. Putting all of this together, we forecast 10% total annual returns for buyers today. Pfizer Inc. Next up is Pfizer , another global pharmaceutical company that discovers, develops, manufactures, markets, distributes and sells biopharmaceutical products. Pfizer offers various treatments for a variety of ailments, including cardiovascular, metabolic, pain, immunotherapies, and biosimilars. Pfizer also famously developed one of the first viable COVID-19 vaccines and has reaped billions of dollars in revenue as a result. Pfizer was founded in 1849, should generate about $80 billion in revenue this year, and trades with a market capitalization of $256 billion. Pfizer reported second-quarter earnings on July 28 and results were better than expected. Pfizer also saw fit to boost guidance for this year following the results. Total revenue came to $19 billion in Q2, nearly doubling year over year thanks to $7.8 billion in COVID-19 vaccine revenue, which was co-developed with BioNTech . Without the vaccine, revenue was up 10% year over year to $11.1 billion. Prevnar sales soared 34% while the oncology business was up 16% year over year. Adjusted diluted EPS rose 73% to $1.05 in Q2. Pfizer expects to deliver 2.1 billion doses of COVID-19 vaccines this year and hopes to manufacture 3 billion by the end of the year. Guidance for COVID-19 vaccine revenue is now expected to be $33.5 billion for the full year, a sharp increase from prior guidance of $26 billion. The company now expects at least $78 billion of revenue this year, and $4.00 of EPS at the midpoint. We've updated our estimate to $4.00 in response to raised guidance. The stock trades for 11.3 times this year's earnings, which compares favorably to our estimate of fair value at 13.5 times earnings, meaning we see a modest tailwind to total returns as a result. The current dividend yield is comparable to Merck at 3.5%, and is also nearly three times that of the S&P 500. Combined with our estimate of 5% annual EPS growth, we forecast 11.3% total annual returns in the years to come. Cardinal Health Inc. Our final selection is Cardinal Health , an integrated healthcare services and products company that operates primarily in the US, but has a small international business as well. Cardinal provides customized solutions for hospitals, healthcare systems, pharmacies, surgery centers, clinical labs, and physicians. Cardinal is organized in two segments: Pharmaceutical and Medical. Through these segments Cardinal provides branded and generic pharmaceuticals, over-the-counter healthcare and consumer products, as well as consumable medical products such as those used in surgeries and general hospital care. Cardinal was founded in 1979, generates about $160 billion in total annual revenue, and trades with a market capitalization of just over $17 billion. Cardinal reported fiscal fourth-quarter earnings on Aug. 5, and results were much weaker than expected, sending the stock plummeting on the day. The company's revenue was up 16% year over year to $42.6 billion, including a favorable comparable base from last year, which saw temporarily reduced pharmaceutical demand from COVID-19. Total revenue for the year came to $162.5 billion, a 6% gain year over year from fiscal 2020. The company also said it took a $197 million COVID-19 PPE-related inventory charge in Q4, impacting the quarter and full-year results negatively. Earnings per share came to $0.77 on an adjusted basis in Q4, down 26% year over year. For the year, adjusted EPS were $5.57. Cardinal guided for $5.60 to $5.90 in adjusted EPS for fiscal 2022, and we've used the midpoint of $5.75 as our initial estimate. We see Cardinal producing 8.8% total returns for buyers of the stock today, consisting of our growth forecast of 3% annually, the 3.9% yield, and a small tailwind from the valuation. The stock trades for 8.9 times our estimated earnings for this year, somewhat below our estimate of fair value at 10 times earnings. Final Thoughts Healthcare stocks tend to be less volatile than shares in other, more cyclical industries, owing to the sector's recession resilience and steady demand tailwinds. This allows companies such as Merck, Cardinal, and Pfizer to continue to raise their payouts to shareholders, and offer strong current dividend yields. With all three stocks yielding at least more than 3%, we see them as solid choices for value-oriented dividend investors looking for strong current income potential.

3 Healthcare Stocks for 3%+ Dividend Yields

These picks are attractive for value-oriented dividend investors looking for strong current income potential.

Columnist Conversation

This Weekend on Real Money

AAP Podcast: A Tongue -- and a Market -- Twister: 'Get a Debt Deal Done'

Selling Some of This Surging AI-Related Stock

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.