One of the biggest reasons to include some exposure to healthcare in your portfolio is simple logic: Healthcare isn’t optional. If someone is ill, they need to address the problem, because the consequences of not doing so are likely to be far less desirable. If you are retired, meanwhile, you’ll likely want to lean toward dividend-paying healthcare stocks.
Three strong options right now are drug giant Pfizer (PFE 1.42%), medical device giant Medtronic (MDT 2.32%), and senior housing-focused real estate investment trust (REIT) Omega Healthcare (OHI +2.30%). Here’s why these stocks, with yields of up to 6.5%, could help power your retirement portfolio.
Image source: Getty Images.
Pfizer is working through a rough patch
Pfizer is an industry-leading pharmaceutical company. It has a long and successful history of developing and marketing drugs. But there’s a normal industry dynamic that is working against the company right now. New branded drugs get a limited period of patent protection. When a patent runs out, generic versions of the drug can be sold, which usually leads to a significant drop in revenues from the branded drug. Pfizer has several patent expirations on the horizon.
Drug companies are always looking for new drugs to offset the hit when branded drugs lose patent protection. Pfizer is working on a host of new drugs right now, but it appears that new drug launches (targeting weight loss, migraines, and oncology) won’t line up with the company’s patent expirations. That is actually fairly normal, since you can’t really predict how research and development successes will play out.
Today’s Change
(-1.42%) $-0.37
Current Price
$25.68
Key Data Points
Market Cap
$151B
Day’s Range
$25.60 – $26.20
52wk Range
$21.97 – $28.75
Volume
39M
Avg Vol
39M
Gross Margin
65.16%
Dividend Yield
6.50%
Right now, Pfizer is deeply unloved and offers a lofty 6.5% dividend yield. Management is clear that the goal is to not only support the current dividend payment, but to grow it over the long term. The payout ratio is currently over 100%, so Pfizer is probably most appropriate for more aggressive investors. However, given the company’s long and successful history, it is likely to muddle through this period just fine.
Medtronic is refocusing its business
The big draw with Medtronic is its 48-year-long streak of annual dividend increases. That puts this large and diversified medical device company just two years away from achieving Dividend King status. Now add to that a historically high 3.6% dividend yield, and you can see why more conservative dividend investors might appreciate owning Medtronic.
Medtronic’s yield is so high because the company is in the middle of a business revamp. Essentially, it got bloated and inefficient, which is normal for large companies with long operating histories. To get back on track, Medtronic has been cutting costs and refocusing on its most profitable divisions. It has also been working on new products, such as its recently launched Hugo surgical robot.
Today’s Change
(-2.32%) $-1.81
Current Price
$76.15
Key Data Points
Market Cap
$100B
Day’s Range
$75.91 – $78.34
52wk Range
$75.91 – $106.33
Volume
10M
Avg Vol
8.8M
Gross Margin
59.59%
Dividend Yield
3.64%
If history is any guide, Medtronic will work through this difficult period and get back on the growth track. If you buy it now, you can collect an attractive and growing dividend while you wait. And when the company does work through this transition period, it is highly likely that Wall Street will again afford it a higher valuation.
Omega is through the hard part
Omega Healthcare is a REIT focused on senior housing properties, including nursing homes. During the coronavirus pandemic that was a very difficult business to be in. However, unlike many of the company’s peers, Omega didn’t cut its dividend. To be fair, the dividend hasn’t been increased since 2019, but it is clear that the REIT places a high value on paying a reliable dividend. The yield is a very attractive 5.8%.
Omega Healthcare Investors
Today’s Change
(2.30%) $1.06
Current Price
$47.19
Key Data Points
Market Cap
$14B
Day’s Range
$46.37 – $47.28
52wk Range
$35.13 – $49.14
Volume
1.8M
Avg Vol
2.1M
Gross Margin
72.35%
Dividend Yield
5.81%
The big draw here, however, is that Omega has already worked through the rough patch it faced. It is now growing its business again. Longer term, the REIT’s opportunity lies in serving an aging population. There’s nothing fancy about it; as people age, they need more help. Omega owns the properties that provide that help. You can help yourself to the REIT’s lofty yield as it moves further from the difficult COVID period.
Retirees tend to like dividends
If you are retired, you are likely looking for your investment portfolio to help supplement your Social Security checks. Three great healthcare sector options every retiree should consider right now are high-yielders Pfizer, Medtronic, and Omega Healthcare. They are very different businesses and, when all is said and done, you may even decide you want to own all of them.
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