5 Healthcare Dividend Stocks for 2011

Includes: ABT, LLY, MRK, PFE, SNY
by: Investment Underground

By Michael Sarid

Healthcare dividend stocks have been one of the most popular places for investors in search of income. As the yield on 10-year treasury notes sink past 2.1% for the first time in over two years, these high-yielding dividend kings have never looked so appealing. Here we take a closer look at five large-cap healthcare stocks with strong yields.

Abbott Laboratories (NYSE:ABT) – Currently trading at $49.08 at the time of writing, this pharmaceutical stock has a market capitalization of $76.40 billion. The stock has a 52-week low of $45.07 and a high for the same period of $54.24. The dividend yield, at $1.92 (3.80%), is decent for the industry and has been cash flow negative this year. The return on equity and profit margin for the trailing twelve months are both strong points of the company’s fundamentals, at 22.12% and 13.78% respectively.

Plans for a new $230 million plant in China that will manufacture nutritional products for infants was recently announced. With a whopping 17 million newborns in China each year, this investment should translate into great returns for years to come. After the stock’s recent retraction, there is some upside here. Resistance is around the $51.12 mark, so watch for the stock to attempt to stabilize and create a base in that region before rallying any further. If you’re looking long term right now, getting in ABT anywhere below $48.70 will be a solid value investment.

Pfizer, Inc. (NYSE:PFE) – Pfizer, one of the world’s leading bio-pharmaceutical companies, is trading at $17.75 at the time of writing, between its 52-week range of $15.66 to $21.45. Boasting a market cap of $137.86 billion, the company has been decreasing its dividend yield, which is now at $0.80 (4.4%), below the drug industry average. The PEG ratio is at 5.4x, above the industry average at 3.30x. However, its P/E ratio of 16.50 is on par with the industry average. Pfizer’s fibonacci retracements show the stock dropped past the 50% mark for the year, but it recovered nicely since the recent volatility spike.

The company recently won a litigation battle with Teva Pharmaceutical (NASDAQ:TEVA), which preserves Pfizer’s copyright on Viagra until 2019. Additionally, Pfizer’s baby milk business, Wyeth, is receiving offers up to $10 billion from companies such as Nestle SA (OTCPK:NSRGY) and Danone SA (OTCQX:DANOY). Pfizer stands to benefit from this deal because in addition to freeing up some of its debt, the company’s primary revenue sources lie in other branches of the company. This makes Wyeth more valuable to Nestle and Danone, who specialize in the dairy industry. This stock is poised for a solid rally in the coming quarters so look to get in at around $17.40.

Merck & Co. (NYSE:MRK) – Merck & Co. is a health care company providing prescriptions, vaccines, therapies and consumer care products. The company has a market cap of $96.31 billion and is trading at $31.22 at the time of writing. The stock is now yielding $1.52 (4.70%). MRK has a P/E ratio of 33.69x, among the highest in its sector. With revenue growth of 7.10%, the company has recently announced its plans to invest in a joint venture with Simcere Pharmaceutical Group (NYSE:SCR) for a manufacturing plant in Shanghai.

There are a few issues I see with this stock right now. First is that the recent sell off has caused Merck to reach a lower low for the year. Additionally, after falling below $30, the stock has had noticeable resistance at the $31.45 mark. Further, fibonacci retracements show very negative signs with a substantial drop past the 61.8% point on the year. The fact that MRK was unable to sustain or break back through anywhere close to the 50% point thus far tells me that investors are very quick to sell on a bullish trend. While the revenue growth is decent, I don’t see MRK having a serious upward movement anytime soon. If I own this stock, I’m looking to sell on a rally.

Sanofi-Aventis SA (NYSE:SNY) – This ticker, priced at $34.36 at the time of writing, specializes in research and development and offers a number of prescription drugs, vaccines, and animal healthcare. The market capitalization is $91.51 billion, with the P/E below industry averages at 14.50x. The stock is paying out a dividend of $1.32 (3.80%), above average for the biotechnology and drugs industry. The growth in revenue in the last year of 4.53% falls below competitors. The company’s profit margin is 13.35% for the trailing twelve months.

Sanofi has recently shown some sell off after recovering a large portion of its losses. However, what I like about the technical chart is how quickly the stock bounced back after testing its previous relative low—it soared 12.30% in one week since bottoming out at $31.57. I’m interested to see how the stock responds to the most recent sell-off it faced late last week. I would only advise to get into this stock if the market’s volatility eases and global economic worries settle. For now, Sanofi’s a hold for me.

Lily (Eli) & Co. (NYSE:LLY) – Lilly is a developer and manufacturer of pharmaceutical products worldwide trading at $35.01 at the time of writing. The company’s market cap is $39.00 billion and the trailing P/E ratio is 8.24, below competitors. The stock is currently paying out a dividend of $1.96 (5.5%), making it the highest percentage yield on this list. Lilly’s profit margin is at 19.75%, almost doubling the industry average. Positive news recently surfaced when Oxford University and Verona University ranked Lily’s anti-psychotic drug Zyprexa, along with Johnson and Johnson’s (NYSE:JNJ) Risperdal, as the top in the industry. The chart is showing mixed signs since the recent volatility that shook the market.

The stock was trading outside the bottom of the lower Bollinger band for six consecutive trading days and did not show much of a rally after that. However, LLY shows promise since it was able to avoid reaching a lower low on the year. Taking a look at the 1-year chart, you’ll notice a trend of the stock reverting back near a low four times. In between these points however, the stock has hit a high between $37.76 and $39.32. If the market shows any sign of bullish trends as we close out the year, this stock should make a substantial rally. I have a price target at $38.70 by year’s end. An investment anywhere under $35 should have great returns by January.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.