Dividend Champions: Focus on Healthcare

The Dividend Champions spreadsheet and PDF have been updated through 2/28/11 and are available at here. Note that all references to Champions mean companies that have paid higher dividends for at least 25 straight years; Contenders have streaks of 10-24 years; Challengers have streaks of 5-9 years. Together, all of these companies may be referred to using the abbreviation “CCC.”

This is the fifth in a series of articles focusing on specific industries and isolating the CCC companies within those industries. The first four can be found under my articles page, beginning on March 2.

More than Drugs

The importance of Health Care companies is becoming clearer every day, both with the aging of the Baby Boomers (and their increased need for health care) and with the actions of state and federal governments, which are legislating mandates and regulations in an attempt to rein in costs. For many years, the segment was closely identified with major drug companies, and those companies still are an important part of the picture. But advancements in medical devices and procedures has brought to prominence a number of companies that provide medical tests, supplies, instruments, and devices that either take the place of drug therapies or enhance their effectiveness. So a well rounded portfolio may well include both pharmaceutical companies and medical products firms, which may have different growth and yield characteristics.

Many of the best known pharmaceutical companies are not on the list below for the simple reason that they have been unable to keep raising their dividends and, in some cases, have actually had to cut their payouts to shareholders. Pfizer (PFE) was deleted in 2009 when it cut its dividend in half and Eli Lilly (LLY) in 2010 when it failed to raise its dividend. Merck (MRK) and Bristol-Myers Squibb (BMY) were never CCC companies because their dividends remained unchanged for many years. The problem for many is now the specter of patent expirations, when well-known drugs will lose their exclusivity. And when top sellers are not about to lose patent protection, competitors are busy introducing alternatives that may cost less. Generic drug manufacturers are quick to introduce alternatives the moment patent protection lapses. So the Drug companies listed have accomplished something just by being able to extend their streaks of dividend increases.

The Companies

Healthcare companies don't make up a large segment of the CCC universe, with 10 Drugs companies and 16 other Medical products firms. But some of these offer above average yields, in contrast to the below average yield of the segment as a whole. The pressures mentioned above have kept stock prices down and driven yields up on high-quality companies like Abbott Labs and Johnson & Johnson, and the Drug group almost universally have recent double-digit dividend increases. There are a number of foreign firms included, but remember to consider tax withholding, which can be offset by claiming credits at tax time. For an investor looking to add one or more Healthcare companies to his or her portfolio, the table below should provide plenty of good choices. I'm again including as many columns of data as is practical, from a perspective of width and significance. Note that Beckman Coulter has agreed to be acquired.

			No.	2/28		%	Payout	TTM	NY%	MktCap	DGR	DGR
Company	Symbol	Industry	Yrs	Price	Yield	Inc.	%Ratio	P/E	Growth	($Mil)	5-yr	10-yr
Abbott Laboratories	ABT	Drugs	39	48.10	3.99	9.09	64.86	16.25	7.41	74,440	9.7	8.8
AmerisourceBergen	ABC	Drugs	6	37.91	1.06	25.00	17.62	16.70	13.69	10,390	61.2	n/a
Astrazeneca plc	AZN	Drugs	7	49.17	4.90	15.31	43.27	8.83	-7.63	69,080	18.6	12.0
Cardinal Health Inc.	CAH	Drugs	21	41.64	1.87	11.43	29.21	15.60	14.62	14,560	32.0	25.7
Johnson & Johnson	JNJ	Drugs	48	61.44	3.52	10.20	45.19	12.85	5.99	168,820	10.6	13.0
Novartis AG	NVS	Drugs	10	56.27	4.18	18.40	55.23	13.21	5.45	128,830	18.2	6.3
Novo Nordisk A/S	NVO	Drugs	9	126.66	1.11	36.07	30.99	27.90	16.27	72,420	27.4	20.9
Perrigo Company	PRGO	Drugs	8	76.43	0.37	12.00	9.49	25.91	14.77	7,060	9.6	n/a
Shire plc	SHPGY	Drugs	7	85.01	0.81	16.50	10.95	26.90	13.29	15,530	15.1	n/a
Teva Pharmaceutical	TEVA	Drugs	12	50.10	1.74	17.20	23.83	13.69	11.76	44,990	22.7	33.6
Averages for	10	Drugs	16.7	63.27	2.35	17.12	33.06	17.78	9.56	60,612	22.5	17.2
Atrion Corp.	ATRI	Med Instrum.	8	176.34	0.95	16.67	16.28	17.09	n/a	355	20.3	n/a
Beckman Coulter	BEC	Med Instrum.	17	83.13	0.91	5.56	23.38	25.58	13.51	5,920	5.4	8.4
Becton Dickinson & Co.	BDX	Med Instrum.	38	80.00	2.05	10.81	29.55	14.41	10.71	17,690	15.5	14.9
Birner Dental Mgmt.	BDMS	Med Supply	7	19.23	4.16	17.65	94.12	22.62	n/a	36	17.9	n/a
C.R. Bard Inc.	BCR	Med Instrum.	39	97.76	0.74	5.88	13.53	18.38	10.33	8,310	7.0	5.5
Medtronic Inc.	MDT	Med Devices	33	39.92	2.25	9.76	30.00	13.31	6.76	42,870	19.0	16.9
Meridian Bioscience	VIVO	Med Instrum.	19	21.57	3.52	11.76	131.03	37.19	19.23	884	28.9	21.7
Mine Safety Appliances	MSA	Med Equip.	39	36.13	2.77	4.17	92.59	33.45	39.47	1,310	13.7	20.2
National Healthcare Cp.	NHC	HC Facilities	7	47.60	2.35	7.69	n/a	n/a	9.63	N/A	14.4	n/a
Owens & Minor Inc.	OMI	Med Equip.	14	31.20	2.56	12.99	45.71	17.83	8.78	1,950	15.3	15.7
Pharmaceutical Prod.	PPDI	HC Services	6	27.47	2.18	5.71	57.69	26.41	18.01	3,260	90.4	n/a
Smith & Nephew plc	SNN	Med Equip.	5	57.95	1.29	10.01	21.59	16.75	8.36	10,250	10.3	4.4
Span-America Medical	SPAN	Med Equip.	11	14.83	2.70	11.11	27.78	10.30	n/a	41	18.7	13.3
Steris Corp.	STE	Med Equip.	6	33.85	1.77	36.36	85.71	48.36	9.55	2,010	34.1	n/a
Stryker Corp.	SYK	Med Devices	18	63.26	1.14	20.00	22.57	19.83	10.51	24,750	46.1	33.9
West Pharmaceutical	WST	Med Instrum.	18	41.11	1.65	6.25	35.98	21.75	15.68	1,370	7.6	6.5
Averages for	16	Non-Drugs	17.8	54.46	2.06	12.02	48.50	22.88	13.89	8,067	22.8	14.7
Averages for	26	Healthcare	17.4	57.85	2.18	13.98	42.33	20.84	12.01	29,085	22.7	15.6
Averages for	447	CCC Co's	16.7	47.91	2.91	8.20	68.18	21.94	12.39	16,745	12.5	10.3

Summary

The Healthcare industry is a traditional source of average yields and there are clearly many that have established long histories of annual increases. Unlike the subjects of the first two articles in this series (MLPs and REITs), the taxation on these dividends is fairly straightforward, at the 15% (or lower) rate until at least the end of 2012. I expect that to be the case with future installments in this series that will focus on other industry/sector groups. As always, I welcome feedback in the Comments section below.

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