Defensive investors like stocks with high dividends as they can protect themselves from inflation by investing in high quality dividend stocks. They also tend to buy such stocks with low P/E ratios, which indicate that the stocks are likely to be undervalued. We are concerned about the Fed’s inflationary monetary policy, and therefore we recommend investors to play defensively by purchasing cheap dividend stocks.
Below, we compiled a list of 6 cheap healthcare stocks with solid dividends. All companies have a market cap of higher than $1 Billion, a dividend yield of at least 3%, and a P/E ratio of lower than 20.
Johnson & Johnson (NYSE:JNJ): Johnson & Johnson is engaged in the research and development, manufacture and sale of a range of products in the health care field. JNJ has a dividend yield of 3.6% and returned 7.1% since the beginning of this year. It has a market cap of $179 billion and a P/E ratio of 15.9. JNJ’s forward PE ratio is 13 and the stock is expected to grow its earnings by 6% per year. The dividends look safe. Warren Buffett has $2.8 billion invested in JNJ (check out Buffett’s top stock picks). Ken Fisher, Ric Dillon and Bill Miller were also main investors in the stock.
Pfizer Inc. (NYSE:PFE): Pfizer is a research-based, global biopharmaceutical company. PFE has a dividend yield of 4.20% and returned 13.6% since the beginning of this year. It has a market cap of $154 billion and a P/E ratio of 18.5. Its forward PE ratio is only 8.6 and analysts expect earnings to grow by 5% annually over the next five years. Pfizer’s dividends seem very safe even though the company isn’t growing as most stocks. Ken Fisher and David Einhorn both invested over $400 million in PFE (check out David Einhorn’s top stock picks).
Abbott Laboratories (NYSE:ABT): Abbott Laboratories is engaged in discovery, development, manufacture, and sale of diversified line of healthcare products. ABT has a dividend yield of 3.6% and returned 16.2% since the beginning of this year. It has a market cap of $84 billion and a P/E ratio of 18.6.Its forward PE ratio is only 11.5 and analysts expect ABT to grow earnings by 8% annually over the next 5 years. ABT seems a little bit overpriced compared to PFE. Ken Fisher invested nearly $500 million in ABT. Ric Dillon also had over $200 million ABT shares.
Bristol-Myers Squibb Company (NYSE:BMY): BMS is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of pharmaceutical products on a global basis. BMY has a dividend yield of 4.1% and returned 28.7% since the beginning of this year. It has a market cap of $56 billion and a P/E ratio of 17. Its forward PE ratio is 14.3 and the stock is expected to grow its earnings by 2%. This is a solid dividend stock but there isn’t much capital gains potential. Jim Simons had more than $200 million invested in BMY shares (see Jim Simons’ top stock picks).
Eli Lilly & Co. (NYSE:LLY): Eli Lilly is also one of the pharmaceutical stocks that are facing generic erosion. LLY has a dividend yield of 5.2% and returned 11.5% since the beginning of this year. It has a market cap of $42 billion and a P/E ratio of 9. Its forward PE ratio is 8.7 and analysts expect LLY to shrink by 0.5% annually. This is another case of solid dividends and dividend coverage ratio but little growth. Jim Simons invested $388 million in LLY shares.
Lincare Holdings Inc. (NASDAQ:LNCR): Lincare is a provider of oxygen and other respiratory therapy services to patients in the home. LNCR has a dividend yield of 3.4% and lost 9% since the beginning of this year. It has a market cap of $2.2 billion and a P/E ratio of 12.8. Its forward PE is 12.3, not much different than its current PE ratio. The good thing about LNCR is that analysts expect the company increase its earnings by 17.5% annually over the next five years. Larry Robbins invested $91 million in the stock.
If your goal is to beat the Treasury yields over the next 10 years, a portfolio of these solid dividend stocks should be able to do that with minimal risk. If you want some exposure to capital gains, then PFE and LNCR seem to be good candidates.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.