The U.S. health care sector is attractive for long-term investors, in part because of the growth of the U.S.' population of people in their 60s and older. The industry is expected to grow going forward, at a rate above gross domestic product growth.
So, we've picked three health care stocks with strong dividends and great potential:
Johnson & Johnson: Healthy Growth
Johnson & Johnson (JNJ) is a diversified health care company and a leader in the area of pharmaceuticals (~49% of sales), medical devices (~34% of sales) and consumer products (~17% of sales). The company is projected to generate approximately $98 to $99 billion in revenue this year.
For the 2023 first quarter, revenue grew 5.6% to $24.7 billion, which was $1.1 billion better than expected. Adjusted earnings-per-share of $2.68 compared favorably to $2.67 in the prior year and was $0.18 more than anticipated. Excluding unfavorably currency exchange, revenue grew 9%. Excluding the impact of currency exchange, all business lines showed growth from the prior year. Pharmaceutical revenues improved 4.2% on a reported basis (up 7.2% excluding currency exchange). Consumer revenue improved 7.4% (+ 11.3%) as Skin Health/Beauty and OTC performed very well and Baby Care inched higher.
Johnson & Johnson offered revised guidance for 2023 as well. The company now expects revenue in a range of $97.9 billion to $98.9 billion, up from $96.9 billion to $97.9 billion previously. Adjusted earnings per share is forecast to be in a range of $10.60 to $10.70, up from of $10.45 to $10.65 previously.
Johnson & Johnson has grown earnings over the past 10 years at a rate of 7.0%. The company managed to grow earnings before, during and after the last recession, showing that the company's products are in demand regardless of market conditions.
J&J is one of the highest-quality dividend stocks in the S&P 500. In April Johnson increased its quarterly dividend 5.3% to $1.19 per share, extending the company's dividend growth streak to 61 consecutive years.
Merck Makes It Work
Merck (MRK) is one of the largest health care companies in the world. Merck manufactures prescription medicines, vaccines, biologic therapies, and animal health products. The company generates annual revenues of around $59 billion.
Merck's first-quarter revenue decreased 8.9% to $14.5 billion, but beat estimates by $660 million. Adjusted net income of $3.56 billion, or $1.40 per share, was $0.03 more than expected. Currency exchange was a 5% headwind to results. The main culprit of the revenue decline was Lagevrio, sales of which declined 88% from the prior year. Excluding currency exchange and the impact of Lagevrio, revenue grew 11%.
Keytruda, which treats cancers such as melanoma that cannot be removed by surgery and non-small cell lung cancer, remains the key driver of growth for the company, with sales up 20% to $5.8 billion. The product generated nearly $21 billion in 2022, up from $17 billion in the prior year. Keytruda continues to see gains in market share across a number of indications. Sales for Merck's HPV vaccine Gardasil improved 35% to $2 billion.
Merck provided updated guidance for 2023 as well. The company expects sales in a range of $57.7 billion to $58.9 billion, compared to $57.2 billion to $58.7 billion previously. Adjusted earnings-per-share are now projected to be in a range of $6.88 to $7.00, up from $6.80 to $6.95 previously.
Future growth will be led by new products. Keytruda has shown very high rates of growth in recent reporting periods. Keytruda has patent protection in the U.S. until 2028, in the European Union until 2030, and in Japan until 2032. In addition, the company recently announced that it had agreed to
purchase clinical-stage biotech company Prometheus (RXDX) for $10.8 billion in cash.
Merck has increased its dividend for 12 consecutive years. The stock currently yields 2.6%.
BMY: A Good Bet
Bristol-Myers Squibb (BMY) is a leading drug maker of cardiovascular and anti-cancer therapeutics, with annual revenues of about $47 billion. The company's competitive advantage is its ability to either create (through research and development) or acquire patents for pharmaceuticals with high potential revenue. Bristol-Myers top three selling pharmaceuticals, Revlimid, Opdivo and Eliquis, have shown solid growth rates and are expected to see high peak annual sales.
In the 2023 first quarter, revenue decreased 3% to $11.3 billion. Adjusted EPS of $2.05 compared favorably to $1.96 in the prior year and this was $0.05 better than expected. Adjusting for unfavorable currency exchange, revenue was down just 1% for the quarter. U.S. revenues grew 4% to
$8.0 billion while international decreased 16% to $3.3 billion.
The company's future growth catalysts include Eliquis, which prevents blood clots, and grew 7% to $2.55 billion last quarter due largely to strength in the U.S. Eliquis has become the top oral anticoagulant in several international markets since 2019 and had nearly $12 billion in revenue for 2022, which was a 10% increase from the prior year. Separately, Opdivo, which treats cancers such as advanced renal carcinoma, was up by 15% to $1.3 billion due to demand for newer indications.
Bristol-Myers reaffirmed prior guidance for 2023 as well. The company still expects adjusted earnings-per-share of $7.95 to $8.25, which would represent growth of 5.2% at the midpoint.
Overall, Bristol-Myers has seen EPS grow at a rate of 19.6% per year over the last decade, but much of this growth has occurred over the past four years. Bristol-Myers has increased its dividend at a compound annual growth rate of 5% since 2013. The stock has a low dividend payout ratio of 28%,which indicates a safe dividend.
BMY stock currently yields 3.6%.
