In our previous study, we projected National Health Expenditures (NHE) for 10 years and showed that NHE as a share of GDP is expected to be 19.6% by 2019. As healthcare spending and costs are rising, we believe that healthcare stocks are attractive and will continue to be in the portfolio of many hedge funds in the future. Our past studies also showed that dividend stocks on average beat the market in the long term. Between 1927 and 2009, high dividend stocks on average returned 13.04%, beating the market by 1.36% per year.
In this article, we are going to focus on the healthcare stocks with high dividend yields. Below we compiled a list of top seven dividend stocks in the healthcare sector. All companies have at least $2 billion market cap and dividend yield higher than 3%. The market data is sourced from Finviz.
Bristol-Myers Squibb Company
Johnson & Johnson
Eli Lilly & Co.
Lincare Holdings Inc.
Merck & Co. Inc.
Bristol-Myers Squibb Company is the best performing healthcare stock on the list above. It returned 32.08% over the past 52 weeks, versus 4.85% for SPY in the same period. Bristol-Myers Squibb discovers, develops, manufactures, markets, distributes, and sells pharmaceutical products globally. At the end of September last year, there were 35 hedge funds reported to own Bristol-Myers in their 13F portfolios. For example, billionaire Jim Simons' Renaissance Technologies had $177 million invested in Bristol-Myers Squibb. The stock has a dividend yield of 4.17% and a forward P/E ratio of 16.16.
Eli Lilly & Co has the highest dividend yield among the stocks listed above. It also performed quite well during the past year. Eli Lilly has a dividend yield of 4.92% and it gained 20.89% during the past 52 weeks, beating the market by 16 percentage points. Eli Lilly develops, manufactures, and sells pharmaceutical products. It also has an animal health business segment. Twenty-five hedge funds disclosed owning LLY shares in their portfolios at the end of September. Jim Simons is bullish about Eli Lilly as well. His Renaissance Technologies reported to own $262 million worth of LLY shares at the end of the third quarter. Cliff Asness' AQR Capital Management also had $25 million invested in LLY. Eli Lilly also has a low P/E ratio of only 9.5, indicating some form of perceived value of the stock.
One mega-cap dividend healthcare stock is Pfizer Inc. It has a dividend yield of 4.02% and returned 25.14% during the past 52 weeks, outperforming the market by more than 20 percentage points. Pfizer is a research-based, global biopharmaceutical company. It reported net income of $3.7 billion for the 13 weeks ending October 2, 2011, up from only $866 million for the same period a year ago. Pfizer has a market cap of $168B and a P/E ratio of 17.24. It is also very popular among hedge funds. As of September 30, 2011, there are 74 hedge funds with PFE positions. For instance, Ken Fisher's Fisher Asset Management had nearly $400 million invested in Pfizer.
Other high dividend healthcare stocks include Abbott Laboratories, Johnson & Johnson, Lincare Holdings Inc., and Merck & Co Inc. We are concerned that the Fed's expansionary monetary policy, such as the ultra-low interest rate, will lead to inflation. We think dividend stocks can provide better returns to investors than fixed income securities like long-term Treasury bonds. We urge investors to focus on the high dividend healthcare stocks and do some in-depth research on these stocks for their own portfolios.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.