10 Defensive Healthcare Dividend Plays

by: Bio Insights

Some bullish relief in the latest downturn has finally come this week. The Dow is well above 11,000 again. It seems as if people are potentially excited about further quantitative easing from Mr. Bernanke and improving numbers. Whether or not this will happen is pure speculation, but the market is still significantly depressed from its highs in July.

It should be (in light of data hinting at a higher chance of recession) but how much? Asset managers are still worried about risky stocks, and they haven't been piling back in (yet). Looking at volume data from the August crash, there was quite a significant spike during the selling. In addition, the Dow Jones is trading in an increasingly narrow range, going up and down over the 11,000 line and approaching the line steadily. This signals that the market is confused and there could be another big move coming our way.

Given these conditions some investors might be worried about another bearish week coming up. If you're one of those people, here are some equities yielding giant dividends that will likely hold its ground if the market goes haywire again.

PDL Biopharmaceuticals (NASDAQ:PDLI)
Yield: ~10.4%
Market Cap: $809 million.
Beta: 0.72
P/E: 8.34

Probably the most notable aspect of PDLI shares is its enormous 10.4% dividend. Its products are successful, and PDL is one of the industry leaders of using antibodies in medication to target specific cells for treatment. Its experimental pipeline includes 2 potential alzheimer's therapeutics (Bapineuzumab and Solanezumab), a treatment for diabetes-1 (Teplizumab) and an innovative way to target breast cancer cells (Trastuzumab-DM1), and they generate income from a variety of popular medications including Avastin (Colon Cancer treatment), Herceptin (Targets specific strand of Breast Cancer), Lucentis (Eye degeneration treatment), Mylotarg (for Leukemia), and others.

Wall Street is optimistic about the equity, expecting roughly $7/share in a year, implying a 21% upside

Eli Lilly & Co. (NYSE:LLY)
Yield: ~5.4%
Market Cap: $41 billion
Beta: 0.77
P/E: 8.49

Having one of the highest dividends of the largest pharmaceutical companies, Lilly has increased its R&D budget 13% since the last year. Its product line is humongous. Some of the most recent drugs on the market include Bydureon and Tradjenta for type 2 diabetes, Axiron for testosterone deficiency, and Adcirca for hypertension. The analysts generally think the stock is going to stagnate, with a price target averaging 35.50 (roughly the current price per share).

Merck (NYSE:MRK)
Yield: ~4.7%
Market Cap: $99 billion
Beta: 0.7

Another huge dividend, and another huge company. Merck's pipeline offers a lot of new drugs that could become big players in its industry. There are 19 products in phase III of clinical trials and 5 undergoing FDA review, and Merck is making significant efforts towards Chinese expansion by combining operations with Simcere (NYSE:SCR). Wall Street is quite bullish on Merck. Analysts average the 12-month target at $41/share, an implied 28% upside.

Bristol Myers Squibb (NYSE:BMY)
Yield: ~5%
Market Cap: $49 billion
Beta: 0.63

An even more conservative investment, BMY has a great lineup of best-selling drugs to continue its dividend payments and at least uphold if not expand the value of its shares. This list includes Plavix (a pill that helps prevent strokes & heart attacks), Abilify (can be used in the treatment of schizophrenia, mania disorders, depression, and others), Reyataz (A medication that inhibits HIV from spreading to new cells), Sustiva (another HIV medication) and many others. Analysts are predicting about $30/share in a year, very close to the current price.

Abbott Labs (NYSE:ABT)
Yield: ~3.8%
Market Cap: $80 billion
Beta: 0.31

Abbott has a long history, and has an extremely low beta. This stock trades in a narrow range, but that's probably what investors reading this article in particular want. It's quite safe and stable. Abbott has a great market niche with in vitro diagnostics, which is a branch that specializes in diagnosing diseases outside the body instead of inside the body. Some of its biggest products include Biaxin (an anti-bacteria agent), HUMIRA (for rheumatoid arthritis and Crohn's disease), and Tricor (a cholesterol and lipid reducer for dieting). This is just 3 in an enormous list of products the company has offered. The average analyst pegs the target price at $56/share, about a 10% upside from the current price of $51.11/share.

Novartis AG (NYSE:NVS)
Yield: ~4.1%
Market Cap: $140 billion
Beta: 0.54

This is a somewhat less known Swiss pharmaceutical company boasts a strong portfolio of drugs that combat some of the biggest afflictions that affect the world today. This includes (but is not limited to) many forms of cancer, cardiovascular diseases, and neurological issues. Its most popular drug by sales is Diovan, which treats cardiovascular and metabolic maladies. This drug alone made 6 billion dollars for the company in 2010. The company also has a great pill for osteoporosis (Zometa) and a treatment for breast cancer (Femara). Analysts are very bullish on the stock with an average of $74.41 a share as the target, about 17% above the current price.

Johnson & Johnson (NYSE:JNJ)
Yield: ~3.5%
Market Cap: $180 billion
Beta: 0.60

A hugely popular holding for individuals and hedge funds alike. JNJ's strength lies in its dividend growth and predictability (although that's the case with many of these healthcare giants). Looking at its price history, like other popular defensive stocks it barely leaves its trading range except on the worst of days (like the 2009 crash). JNJ is well covered in its pipeline with drugs covering everything from oncology to infectious diseases, and although it has been slowing down its growth the dividend is very reliable and thus it is a great dividend play. Analysts are bullish on the stock, giving it an average price target of $71/share, implying a possible upside of 9%.

Sanofi SA (NYSE:SNY)
Yield: ~4.81%
Market Cap: $98 billion
Beta: 0.85

This company is just like the others, but that's not a bad thing. The stock price hasn't reached its 2007 highs yet. Sanofi gets a very large proportion of its revenues and growth from emerging markets, which place it in a good position to benefit from the restructuring of the healthcare system in developing nations. Also its largest segment in terms of its pharmaceutical department is in diabetes care, which is unfortunately a very common disease. Sanofi does have the room to grow significantly due to this. In addition the yield is very good, and analysts are bullish with an average of $42.66/share, implying roughly a 17% upside.

AstraZeneca (NYSE:AZN)
Yield: ~5.70%
Market Cap: $64 billion
Beta: 0.56

AstraZeneca is trading at a low P/E of 8.23 and has one of the best yields on the list. Despite trouble developing drug Axanum since it's partially just aspirin, there are still 19 drugs in phase III of clinical trials or later stages with presence in a broad range of medical subfields. Analysts are somewhat bullish on the stock too, giving it a 12-month target of $52/share on average, implying about a 10.6% upside.

Pfizer (NYSE:PFE)
Yield: ~4.35%
Market Cap: $143 billion
Beta: 0.70

Pfizer is a strong investment due to the strong pipeline and dividend, but it is surprisingly risky. The effects of Lipitor's (Pfizer's best-selling cholesterol medication) expiration in November and the relatively unpredictable moves in the shares makes it less "boring" to watch than the like of JNJ. Still, Pfizer has a whopping 25 drugs in phase 3 of clinical trials in the US and has been increasing R&D spending. Analysts are very bullish on the company, averaging $23/share in estimates. This is about 26% above the current price, a sizable return indeed.

Ultimately, these equities were selected because of their high dividends and relative stability compared to many other stocks you can buy. For the most part, healthcare companies will all benefit from our nation's aging population and massive restructuring of the medical economy abroad. In addition to its near-immunity to economic downturns, all the companies on the list compensate shareholders with generous yields (although they may change in time).

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