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The Best Healthcare Dividend Stocks For Your Portfolio

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Why are healthcare stocks going up? Because the healthcare stocks outlook for investment returns is bright. Healthcare is the single largest expense US citizens face and the amount of money spent on it is growing annually. The latest data from CMS.gov, the Centers for Medicaid and Medicare Services, shows that individual spending is growing at an annualized rate near 5% that, when coupled with the US expanding and aging population, will drive revenue and earnings growth for the next 3 to 4 decades.

What healthcare stocks to invest in? The best healthcare dividend stocks have a track record of growth and are positioned to benefit from demographic trends. The US population is aging, senior care is a growth market, and that is an opportunity for investors today. The average person aged 65 and older is paying two or three times the national average annual healthcare cost of $10,348, and the number of people in that age group is expected to double over the next few decades. By 2060 a full 25% of Americans are expected to be over the age of 65, a trend savvy companies are capitalizing on.

The Healthcare stocks to buy 2018 may be focused on a single segment of the medical industry but are not limited to senior care. The Millennials are an even larger demographic than retirees and a growing revenue center for the industry. Click Here To Go Straight To Our Top Healthcare Stocks

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Healthcare Dividend Stocks: For You And Your Portfolio

Are healthcare stocks a good investment is not the question you should be asking yourself. What you should be asking yourself is what healthcare stocks to buy in 2018. Why? Because healthcare is a multi-Trillion dollar industry with a bright outlook in its future. Data from a number of sources including the CMS.gov and the CDC (the Center For Disease Control) agree; annual healthcare spending is increasing at a steady rate and will continue growing over the next two decades. At 17.9% of total US GDP it is certainly not a sector you want to avoid.

Growth in healthcare related spending is driven by two things; America’s growing population and America’s aging population. The Census Bureau estimates that by the year 2060 the US population will have grown by 78 million people, or nearly 25%, to over 420 million with a full 100 million+ over the age of 65.

Based on Census Bureau estimates and current industry size (about $3.2 trillion) we can expect to see the healthcare industry expand by at least $1 trillion over the next few decades. The growth will be dominated by hospital care (32% market share), physician services(20% market share)  and prescription drugs (10% market share) but opportunities exist in other segments. Alternative treatments like chiropractic and podiatry, dental, at-home and residential care are all expected to see significant growth as well.

 

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Healthcare Stocks To Buy 2018 Have Strong Earnings Outlook

When it comes to investing and what stocks to buy, earnings are always a great place to start. Companies with a track record of earnings growth, an expectation for future growth and a propensity for beating analysts estimates consistently outperform their peers regardless of market conditions. When talking about healthcare as a sector, the outlook for earnings growth is good so choosing the best healthcare dividend stocks to buy is more about picking the best-in-breed than anything else.

Earnings growth is expected to be strong for the healthcare sector in 2018. The consensus estimate is 11.3% growth for the full year, a bit less than the broad market’s estimated 18.4%, but the difference is mitigated by dividend distribution. The broad market S&P 500 is averaging a yield near 1.85% while the top names in healthcare average more than 3%. In addition, companies like Cardinal Health are dividend aristocrats so there is an expectation for distribution increases from it and others companies within the sector.

Our First Dividend Healthcare Stock Pick

1.) Cardinal Health – Cardinal Health (CAH) is the leading distributor of medical supplies. It is engaged in the business of procurement, packaging, inventory management and distribution of pharmaceuticals and medical supplies to hospitals, pharmacies and other healthcare facilities. Cardinal Health’s largest customer is CVS, the US fastest growing drugstore chain, ensuring its position as the leader in healthcare product distribution services.

Shares are trading near $64.50 which puts the dividend yield at 2.90% with an expectation distributions will be increased.  The company is a dividend aristocrat, a company that has increased its dividend every year for at least 25 years, with a very healthy dividend payout ratio, making it an attractive addition for any income based portfolio. The dividend payout ratio is near 35% and at a level the company could safely increase distribution without the need for earnings growth.

There is some concern about the company’s debt, about 118% relative to equity, which means interest payments could affect the bottom line. In this case there is little reason to worry because interest payments are only 10% of free cash flow, nowhere near high enough to threaten dividend distributions or future dividend increases.

The stock is trading at a discount relative to its earnings that investors should be aware of. The February 2018 market correction helped drive prices to $65 and near long term lows. The correction reduced P/E, price relative to earnings, to 11X forward earnings and well below its long term averages. The five year average P/E for this stock is closer to 28X forward earnings, a metric which suggests investors could see gains in the range of 200% to 300% over the next 12 to 24 months.

Because we expect to see high single to low double digit earnings growth over the next 3-5 years our target is much higher, well north of $200. Earnings growth, dividend health, dividend growth, demographic trends and positioning within the industry give this company an edge that will attract market attention and drive share prices higher over the long term.

The 2nd Pick for Health care dividend stocks

This Innovative Healthcare Stocks Outlook Is Bright

CVS Health – CVS Health (CVS) is an innovative healthcare company leading change within the industry. The recently announced merger of CVS Health with Aetna ties an insurer with a services/products outlet, streamlining care and cost in a way never seen before. The move is well supported by shareholders, expected to move forward with little regulatory issue and will drive value for shareholders of both companies.

On its own, CVS Health is one of the US leading integrated healthcare companies. After the merger it will the largest. The company currently operates through 9,700 locations and is the largest pharmacy chain in North American, filling more than 1 billion prescriptions per year. Along with the retail side the company also operates a variety of clinics, at-home-services and long-term care facilities giving it ample exposure to high-demand healthcare market segments.

While not a dividend aristocrat CVS Health does have a long history of dividend payments. CVS has been steadily increasing distribution over the past 14 years with the most recent payment set at $.50 quarterly, $2.00 annually, for a yield of 3% with shares trading at $63. The caveat is that distributions were temporarily suspended pending the merger with Aetna, a concern for the near term that will ultimately become a catalyst for higher shares prices when the distribution is reinstated.

The stock has been in a down trend over the past 2 years driven by a number of concerns including the cost of the Aetna deal, margin contraction within key business segments (retail and long-term care) and slowing same store comparisons we say these fears are overblown in light of expected growth within the industry. The Aetna deal sets them up to serve more clients in a more efficient manner while slowing comps are to be expected as the company asserts its dominance in maturing markets. Regardless, the company was, and is, growing revenues and EPS by mid-single to low double digits, no reason for shares to be falling.

The down trend in prices has left shares of CVS Health trading with a forward P/E of only 9X earnings, well below the 5 year average of 20X earnings, and at a considerable discount. This valuation assumes the stock could double in price and we agree. Our 12 to 24 month price target is $120 with a longer term target closer to $240 as demographic trends begin to reveal themselves in the form of revenue and earnings.

Use Overlooked, Undervalued Healthcare Dividend Stocks To Boost Your Portfolio

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The Last Pick for Health Care Dividend Stocks:

3:) Abbott Labs – Abbott Laboratories (ABT) is an often overlooked healthcare stock that has seen big gains in share price over the past two years. The stock is in a strong up trend driven by revenue, earnings, dividends and most importantly dividend increases. Abbott Labs is another strong dividend payer although its metrics don’t reveal it; the spinoff of AbbVie (pharmaceutical stocks) and move to acquire St. Jude have skewed the data but provide opportunity for investors today. In reality, Abbott Labs is a company that has been in business for more than 125 years with a presence in more than 100 countries and more than 90 years of consecutive dividend payments.

Abbott Laboratories is an integrated healthcare products company operating in the consumer and professional segments. The company owns and markets well-known household brands like Similac (infant nutrition/health), EAS Sports Nutrition and Ensure (nutrition) as well commonly used medical devices and products for cardiovascular, diabetic, diagnostics and nueromodulation (electric stimulation) giving it exposure to the broad spectrum of age brackets and health related need.

One of the things that makes Abbott Laboratories such a good company is its drive for innovation. As a medical products company in the age of digital technology, the Internet of Things and AI it is constantly updating, upgrading and advancing medical technology in every field that it operates. Over the past year the company has released 20 new products like the Freestyle Libre (glucose monitor, diabetes) and Confirm RX Insertable Cardiac Monitor that bring medical technology to a level only seen in sci-fi movies. The Freestyle Libre is a smart glucose monitoring and insulin delivery system that allows diabetics to live a freer life than ever before, important because it ties into another key area investors should be aware of, artificial intelligence.

Abbott Laboratories is the most fairly valued of the companies on our list trading near 20X forward earnings expectations. This makes it a little expensive compared to broader market S&P 500, closer to 18X earnings, but in our view worth it for two reasons. The first is its business, the company services two of the largest and fastest growing segments of healthcare, cardio and diabetes, as well as consumer products for all age groups which positions it very well for long term revenue growth, dividend health and dividend increases. The second is the technical picture. The weekly charts look very bullish and suggest a move to $80 is very likely over the next 12 months. Our target is closer to $120 on expected revenue, earnings and dividend distribution growth.  

The Best Healthcare Dividend Stocks For Your Portfolio

The best healthcare dividend stocks will not only deliver long term income for you they will deliver capital gains counted in triple digits as the US, and global, population grows and ages. What makes them such a great buy right now is their valuation. Most are trading at large discounts relative to expected earnings providing an historic entry point for savvy investors aiming to capitalize on the healthcare stocks outlook.