I believe that the best segment for growth over the next decade or longer is the healthcare sector. The stocks that are poised for growth are already brand names and are best of breed in my opinion; Teva (TEVA), Aflac (AFL), and UnitedHealth Group (UNH).
Each of these companies could benefit from the Affordable Care Act, and they already have the infrastructure in place to grow profits significantly in the near and longer term.
Not only that, they each have a solid track record of dividend payments. Of late, each of them has even raised their dividends to offer stronger shareholder value.
Let's Take A Look At These Stocks
First, look at the chart:
Increasing dividends, and YOY earnings growth ranging from 28% up to 55% (yes they have fluctuated), seems pretty solid for many investors to look into further I would think.
A bit deeper into the fundamentals now:
Teva: Price: $40.35/share, Dividend Yield: 2.10%, ESS Rating: Bullish
- Forward P/E of just 7.13.
- $47 billion enterprise value.
- 32% dividend payout ratio.
- $5 billion in operating cash.
- Revenue growth of 14.5%, earnings growth of 54.69%.
- Share price to BV of only 1.50.
The largest portion of Teva's business is in generic drugs. With the emphasis on reducing healthcare costs, the company stands to grow just by this fact alone.
Per the company's own business summary:
"Teva Pharmaceutical Industries Limited develops, manufactures, and sells pharmaceutical products worldwide. It offers generic pharmaceutical products in various dosage forms, including tablets, capsules, ointments, creams, liquids, injectables, and inhalants; and provides basic chemical entities, as well as specialized product families, such as sterile products, hormones, narcotics, high-potency drugs, and cytotoxic substances. Its principal branded pharmaceutical products comprise Copaxone for multiple sclerosis; Provigil and Nuvigil for the treatment of excessive sleepiness associated with narcolepsy, obstructive sleep apnea, and shift work disorder; Azilect for the treatment of Parkinsons disease; Fentora and Actiq for the treatment of pain in opioid-tolerant adult patients with cancer; Amrix for muscle spasm in acute, painful, musculoskeletal conditions; ProAir for the treatment of bronchial spasms; and Qvar for long-term control of chronic bronchial asthma."
Teva is at the front of the line when any drug comes off of patent, and in future, articles we will explore that business in detail. Given 110 years of trusted products, Teva can be considered a bellwether stock in any portfolio.
Aflac: Price: $52.45/share, Dividend Yield: 2.75%, ESS Rating: Bullish
- Forward P/E of just 7.54.
- $33 billion enterprise value.
- 22% dividend payout ratio.
- $15 billion in operating cash.
- Revenue growth of 12%, earnings growth of 37.58%.
- Share price to BV of only 1.52.
This company has become a business favorite with its product offerings and reasonable pricing structure. As per the company's own business summary:
"Aflac Incorporated, through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance. The company offers various voluntary supplemental insurance products, including cancer plans, general medical indemnity plans, medical/sickness riders, care plans, living benefit life plans, ordinary life insurance plans, and annuities in Japan. It also provides loss-of-income products, such as life and short-term disability plans; and products designed to protect individuals from depletion of assets, which comprise hospital indemnity, fixed-benefit dental, vision care, accident, cancer, critical illness/critical care, and hospital intensive care plans in the United States."
The brand has been supported by the most annoying duck on the planet. Everyone knows that sound; "Affflaaaccc, quack, quack." It has become one of the premium brand names in the entire sector and it transcends the mundane business in and of itself. Going forward, this will create customers for life, with a brand name they can trust.
UnitedHealth: Price: $53.65/share, Dividend Yield: 1.75%, ESS Rating: Very Bullish
- Forward P/E of 9.62.
- $55 billion enterprise value.
- 14% dividend payout ratio.
- $12 billion in total cash.
- Revenue growth of 8%, earnings growth of 28%
- Share price to BV of 1.75
The Affordable Care Act will drive individuals to obtain health insurance, and UNH is perhaps the most well-known brand among seniors as well as corporate America. For seniors, the company offers reasonably priced Medicare supplemental plans as well as Medicare Advantage plans.
With 40 million uninsured Americans now seeking coverage, UNH stands to gain members not just with seniors, but with the mainstream population. It has developed reasonably priced HMO and PPO plans for just about every need, and with the new law in place, UNH stands to profit nicely.
As per the company's own business summary:
"UnitedHealth Group Incorporated operates as a diversified health and well-being company in the United States. The companys UnitedHealthcare segment offers consumer-oriented health benefit plans and services to national employers, public sector employers, mid-sized employers, small businesses, and individuals; health and well-being services to individuals aged 50 and older addressing their needs for preventive and acute health care services; health plans and care programs to beneficiaries of acute and long-term care Medicaid plans; and specialty benefits, such as dental, vision, life, and disability products. This segment serves through a network of 754,000 physicians and other health care professionals, and 5,400 hospitals."
The company is the only company endorsed by the AARP and with a membership of more than 40 million, (and growing everyday) the power of the organization can drive even more of its membership to UNH. If there is one insurance company that stands to benefit from all of the changes in the healthcare sector, UNH could be the best bet.
Even though UNH has a yield of just 1.75% right now, the company has increased the dividends rapidly since 2010. With the payout ratio of just 14%, it can well afford to increase those dividends quite steadily now. I believe this company will be another dividend winner in the years ahead.
This sector will see significant growth in the near term and the longer term. I do not think anyone would deny that. The issue for us is which stocks to own in a sector so large.
I think these 3 stocks are worth taking a look at for your own portfolio. Not just for dividends, but for the capital appreciation that each may offer.
Disclosure: I am long TEVA.