3 Rising Dividend Stocks In Healthcare

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 |  Includes: ABT, JNJ, MRK, NVS, PFE
by: Mark Bern, CFA

By Mark Bern

While there are many companies in the healthcare industry worth considering, I chose these three because of the outstanding dividend records. With increases in consecutive years from 14 years to 49 years, it is hard to argue that these three companies are committed to returning value to shareholders. All three sport dividends of at least 3.4 percent and all three have excellent credit ratings and solid balance sheets.

Johnson & Johnson (NYSE:JNJ) is my favorite of the group at this time. The current dividend of $2.28 yields 3.5 percent and is the culmination of 49 consecutive years of increases. The last change in dividend was a ten percent increase on April 28, 2011 and over the last five years the annual increases have averaged ten percent. Earnings have also increased over the same period by an average of 6.6 percent annually. Results have been choppy, reacting to overall economic conditions and patent expirations, but I believe it is important to focus on the average results over five years rather than a single year. JNJ should be able to continue with similar growth rates going forward in the seven percent per year range on average for both EPS and dividends. The company has over ten new products in the biopharmaceutical area expected to launch over the next few years which will help drive that continued growth. My five-year price target for JNJ is $105.

Novartis (NYSE:NVS) has increased its dividend in each of the last 14 years in its local currency (Swiss franc); variations may occur due to currency exchange rate fluctuations, especially since the Swiss have decided to peg their currency to the euro. The last dividend change was a five percent increase on February 1, 2011 and annual increases over the last five years have averaged 15 percent. Earnings increases have increased by about 10.5 percent on average over the same period. Novartis has a very promising pipeline which includes products in cancer, asthma and vaccines. I suspect the company will be able to more than offset revenue declines from near-term patent expirations. I like the company’s diversity of product lines and believe it will provide some needed stability with the uncertainty that faces the industry over the next few years. My five-year price target for NVS is $82.

Abbott Labs (NYSE:ABT) is my final selection for investor consideration. The company has increased its dividend for 39 consecutive years and at an average annual rate of ten percent over the past five years. The last increase was nine percent on February 18, 2011. Earnings per share have increased over nine percent per year on average of the same period. The company has announced it is splitting into two companies; the pharmaceutical company will be spun off to shareholders while the medical devices, generics, and nutritional businesses retain the Abbott name. The medical devices unit will have the higher growth potential, but the pharma unit will probably pay a better dividend. The growth driver for the pharma unit is its aggressive expansion into emerging markets like India. Sales from emerging markets grew 23 percent in latest period reported and accounted for 58 percent of the established pharma segment. My five-year projected total return on the combination of the two companies is 12 percent.

As always, this list is presented as a starting point for investors who are looking for a potential healthcare company to add to their portfolio. Please do some additional due diligence as your homework is important in determining whether any of these stocks is an appropriate fit for your goals and financial needs.

Two other healthcare companies with good dividends are Merck (NYSE:MRK) and Pfizer (NYSE:PFE). An article comparing the two can be found here.

Disclosure: I am long JNJ.