A dividend is more than passive income to investors. It's a sign of confidence from management in the business itself. After all, management probably wouldn't give you that cash to shareholders if they felt the company needed it more.
Do you know what's better than a dividend? A rising dividend. Increasing the amount a company pays is the ultimate vote of confidence. These are the businesses you want to buy and hold.
Healthcare is a multitrillion-dollar industry, but a few familiar faces have excelled for decades -- enough so that they've raised their dividends for 50 consecutive years or longer, making them Dividend Kings.
Here are three dividend-paying healthcare stocks you can buy and hold confidently today.
1. A company with a higher credit rating than America
Johnson & Johnson (NYSE: JNJ) is arguably the bluest blue chip stock on Wall Street. The company has a history dating back to the 1800s and is still a fixture in the healthcare industry. After spinning off its consumer products segment as Kenvue, the business is even more focused on pharmaceutical products, medical devices, and technology.
Want consistency? From 1980 to 2020, Johnson & Johnson never saw annual sales dip more than 6% from their high.
That consistency has made Johnson & Johnson a dividend machine. The company has churned out increasingly higher dividends for 62 consecutive years, persevering through wars, recessions, and pandemics along the way. The secret is ironclad financials. Johnson & Johnson has a AAA credit rating-- higher than even the United States government. Additionally, the 66% payout ratio is plenty comfortable for such a steady producer.
Today, the stock yields a noteworthy 3% at its current share price. The stock trades at a forward P/E ratio of only 15. Admittedly, analysts are a little sour on Johnson & Johnson's growth outlook, forecasting annual earnings growth of only 5% to 6% over the next three to five years. But ultimately, you're paying for that consistency and quality. There might not be a better company to trust your money with.
2. This stock is a King in the medical device category
Becton, Dickinson (NYSE: BDX) is another company that's built a reputation for excellence over decades. It's a highly diverse business that designs and sells medical supplies, equipment, and diagnostics tools to various healthcare users, including doctors, researchers, and hospitals. That means it doesn't rely on any specific end market or user, making Becton, Dickinson a durable performer for investors.
Yes, it's an outstanding dividend stock. The company has paid and raised its dividend for 52 years running. The dividend payout ratio is only 42% of cash flow, which shows you how prudent management has been in not letting a big payout harm the company's financial flexibility over the years. The stock's starting yield is smaller at 1.6%, but the low payout ratio could mean investors see solid dividend growth moving forward.
The stock trades at 18 times estimated 2024 earnings, a reasonable valuation for a company analysts figure will grow earnings by over 9% annually for the next several years. Investors would be best served to plant Becton, Dickinson in a diversified portfolio and let the business continue to do what it's already been doing for decades.
3. Buy and hold this diversified blue chip
Abbott Laboratories (NYSE: ABT) is the definition of a wealth compounder. An employee named Grace Groner once bought a few shares of stock in the 1930s and held them until the day she passed away. Due to the company's decades of steady growth, she died a multimillionaire.
Abbott Labs is a healthcare conglomerate that is still an industry force today. It sells consumer products, medical devices and equipment, and generic pharmaceuticals in emerging markets.
The company's consistent excellence has made it a stellar dividend stock, with 52 consecutive years of dividend growth. Today, the payout ratio remains manageable at 70% of cash flow, offering investors a starting dividend yield of 1.8%. The company has aligned itself with products treating cardiovascular health and diabetes, two of the most prominent chronic diseases in America, the world's most lucrative healthcare market.
Abbott's only knock is how much shares cost today. The stock's forward P/E of 26 reflects the high esteem Wall Street holds it in, though analysts believe earnings growth will average 9% annually for the next three to five years. Abbott's quality makes it hard to stay away, so consider a dollar-cost average strategy with Abbott. Buying a little at a time will leave you some dry powder in case market turbulence serves up shares at a more attractive valuation.
Should you invest $1,000 in Johnson & Johnson right now?
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories and Kenvue. The Motley Fool recommends Becton, Dickinson And and Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
3 Dividend Kings of Healthcare Stocks to Buy Hand Over Fist in March was originally published by The Motley Fool
