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In a previous article, we discussed the effectiveness of dividend investing in mega-cap healthcare stocks. Healthcare is a fast growing sector and healthcare stocks are promising overall. Though, healthcare stocks with dividend yields over performed the stocks with no dividends during the last 52-weeks.

A similar pattern can be observed for the mid-cap healthcare stocks. We believe high dividend yielding stocks generally perform better than low dividend yielding ones. We also think dividend yielding stocks provide better protection in the current monetary environment. Concerned for an upcoming inflationary period, investors may seek dividend yields as alternatives to T-bond returns in near future.

We compiled a list of 20 Healthcare Stocks (the sector classifications are sourced from Finviz) that have a market cap between $5M - $10M and ranked them based on their 12-month dividend yields. Stocks with dividends and no dividends, and their 2011 performances, are shown below:

STOCKS WITH DIVIDEND YIELDS

Dividend Yield

YTD Return

Quest Diagnostics Inc.

DGX

0.7%

8.50%

CR Bard Inc.

BCR

0.6%

23.49%

DENTSPLY International Inc.

XRAY

0.4%

16.15%

Universal Health Services Inc.

UHS

0.4%

25.18%

Perrigo Co.

PRGO

0.3%

36.10%

AVERAGE

21.88%


STOCKS WITH NO DIVIDEND YIELDS

Dividend Yield

YTD Return

Forest Laboratories Inc.

FRX

0.0%

9.91%

Laboratory Corp. Of America Hold.

LH

0.0%

13.77%

Life Technologies Corp.

LIFE

0.0%

-1.64%

Hospira Inc.

HSP

0.0%

-1.10%

Illumina Inc.

ILMN

0.0%

15.99%

Alexion Pharmaceuticals Inc.

ALXN

0.0%

20.00%

DaVita Inc.

DVA

0.0%

24.69%

Varian Medical Systems Inc.

VAR

0.0%

-0.82%

Watson Pharmaceuticals Inc.

WPI

0.0%

22.36%

CareFusion Corp.

CFN

0.0%

13.39%

Cephalon Inc.

CEPH

0.0%

29.08%

Hologic Inc.

HOLX

0.0%

14.45%

Dandreon Corp.

DNDN

0.0%

10.02%

Human Genome Sciences Inc.

HGSI

0.0%

18.04%

Coventry Health Care Inc.

CVH

0.0%

34.17%

AVERAGE

14.82%

Mid-cap healthcare stocks generally have low dividend yields, however investing in dividend stocks is still advantageous. Even though the dividend yields are low, they signal strength in these companies’ underlying businesses. The dividend yielding healthcare stocks have performed better than the stocks with no dividend yields since the beginning of this year. The average year-to-date return of the 5 dividend yielding mid-cap healthcare stocks was 21.88% vs. 14.82% for the second group of 15 stocks with no dividend yields. Three stocks (LIFE, HSP, and VAR) of the second group had a negative performance, while no stocks in the first group brought negative returns to its investors in 2011.

Five mid-cap healthcare stocks with dividend yields are as follows:

Quest Diagnostics Inc. (NYSE:DGX): Quest Diagnostics Inc. is a global company providing diagnostic testing and related services worldwide. DGX has a high dividend yield of 0.7% and returned 8.5% since the beginning of the year. DGX recently traded at $58.18. The stock has a market cap of $9.15B and P/E Ratio of 19.94.

CR Bard Inc. (NYSE:BCR): CR Bard Inc. is a healthcare devices manufacturer operating worldwide. BCR has a 0.6% dividend yield and returned 23.49% since the beginning of the year. BCR recently traded at $111.62. The stock has a market cap of $9.56B and P/E ratio of 20.06.

DENTSPLY International Inc. (NASDAQ:XRAY): DENTSPLY International Inc. is a dental equipment and dental consumer product manufacturer operating worldwide. XRAY has a 0.4% dividend yield and returned 16.15% since the beginning of the year. XRAY recently traded at $39.28. The stock has a market cap of $5.53B and P/E ratio of 20.77.

Universal Health Services Inc. (NYSE:UHS): Universal Health Services Inc. is a healthcare management company operating various hospitals and health centres. UHS has a 0.4% dividend yield and gained 25.18% in 2011. UHS recently traded at $53.50. The stock has a market cap of $5.23B and P/E ratio of 19.36.

Perrigo Co. (NYSE:PRGO): Perrigo Co. is a pharmaceutical company manufacturing over-the-counter pharmaceuticals, generic drugs, consumer healthcare products and nutritional products. PRGO has a 0.3% dividend yield and returned 36.10% since the beginning of this year. PRGO recently traded at $85.50. The stock has a market cap of $7.93B and P/E ratio of 26.50.

A portfolio that is long in these five stocks and short in the 15 stocks with no dividend yields would have returned 7 percent in 5 months. Short selling isn't for everyone but we believe investors should at least consider partial short selling to hedge some of their sector risk.

Source: 5 Dividend Yielding Mid-Cap Healthcare Stocks