Top 3 Healthcare Dividend Stocks – Dividends for Passive Income


Hi, I’m Jimmy in this video, I’m going to
walk through my top three dividend stocks from the health care sector. This video is part of our passive income from
dividend series where we’re going through each of the 11 GICS sectors and try to identify
a handful of dividend stocks that could do well and ultimately get our get. Each of us closer to our goal of financial
freedom. Okay. Simple enough. Now, so far in this series, I’ve been trying
to identify both European and U.S. stocks that could do well going forward, but actually
struggled in this particular sector to find great European dividend stocks in the health
care sector. Because of that, I’ve focused mostly on the
US stocks, although stick around to the end because I’ve got a couple ones that also trade
in Europe. So to make this list, I created a few fundamental
sort of guidelines that each company has to meet in order to make this list. They have to have a dividend yield above 2
percent. They have to have a strong dividend coverage
ratio and ideally they should be able to grow their dividend. Now, if you happen to know any great European
dividend stocks that meet these criteria, please put them in the comments below. I’d be curious to see which ones everybody
comes up with. Okay, let’s jump into our first U.S. dividend
stock. First up, we have Johnson and Johnson, ticker
symbol JNJ. Now, Johnson and Johnson has a dividend yield
of a bit more than two and a half percent. And Johnson and Johnson manufactures and sells
a ton of products. They have a large pharmaceutical division. They sell skin and hair care products. They have over-the-counter medicines. They sell medical devices. And the list goes on and on. When we look at their dividend per share,
well, this is exactly what we would expect, a very consistent, steadily growing dividend
per share from a pharmaceutical type company. These are the older, more established companies
out there that are likely to going to be able to continue to pay their dividends despite
what the economy does. These tend to be very defensive dividend stocks
and we could see that. Analysts are expecting that to continue. Analysts estimates are the green bars. So it looks like they expect that to continue
on from here. When we add earnings per share to this chart,
well, we can see that earnings more than cover the amount of dividends that they’ve been
currently paying out. That’s likely to be a good thing for the sustainability
of those dividends. Now, I mentioned that it’s important when
I was screening for these companies that they each of these companies have a strong dividend
coverage ratio. If you’re curious about that, just as an example,
if we take the 2018 numbers while we take their adjusted earnings per share of about
six thousand eighty cents per share, we divide that by their dividend of three dollars and
50 cents and we get a dividend coverage ratio of 1.9X. That’s pretty good. Okay. So overall, JNJ looks like a solid dividend
stock. Next up, we have Cardinal Health Ticker Symbol
CAH. Cardinal Health is one of the leading pharmaceutical
and medical distributors in the world and they have a dividend yield of about three
and a half percent. When we look at their dividend per share,
well, once again, we can see that they’ve been quite consistent. But then when we add profits to this whole
thing, well, we can see that this story gets a bit more interesting here. We can see that their profits per share had
a big drop back in 2018, and that happened because they ran into some supply chain and
operational issues. Well, clearly, it looks like a lot of those
issues have been sorted out since 2019. Earnings per share got much better. And we end up with a pretty good dividend
coverage ratio of almost 2x in 2019. Now, that’s actually the primary advantage. It’s a reason why I have the different coverage
ratio rule in there because that gives us a little bit of wiggle room if a company runs
into problems. Typically, I like to have companies that have
somewhere between a 1.5X and 2X, which gives you the wiggle room we need. So this 1.95X is what I think they actually
have. That’s much better in my opinion. Now for looking for more growth. What we’d want our dividend coverage ratio
to be much higher since in theory that would mean that they’re paying out a smaller piece
of their dividends and they could use the rest of the company, the rest of the cash
to fuel the company growth. If we want more dividends or we want a lower
dividend coverage ratio implying that they’re paying out a larger percentage of their their
profits as dividends for that would probably run companies like our Real Estate Investment
Trust or REITs or a master limited partnership, which is MLP for sure. Those tend those types of companies tend to
pay out a larger percentage of profits. Okay. Let’s jump to our next company, Pfizer. Ticker symbol PFE Pfizer is a solid dividend
yield of about three point seven percent and they’re one of the stronger pharmaceutical
companies out there. When we add their dividends per share chart,
well, there we can see that they’ve been quite stable. And what we really expect from a solid health
care or defensive dividend stock, when we add adjusted earnings per share to this, well,
we can see that dividends have been consistently covered on an annual basis. Their profits. I know some of their quarterly numbers didn’t
quite meet the meet what they needed, but overall their annual numbers are getting there,
which I think is the most important thing for most dividend stocks. Now, the 2018 dividend coverage ratio is the
lowest of the three stocks we’ve looked at so far with about one point six acts. But if we believe analysts. Well, looks like they’re expecting about 2x
in 2019. And I think that this is very reasonable considering
that three quarters of 2019 have already been completed. And all signs are that the fourth quarter
should get them at least relatively close to their 2 times dividend coverage ratio. Okay. Now get a few other dividend stocks that I
thought I really wanted to add to this list, but frankly, they didn’t meet one or two of
the criteria. So what I’m going to end up doing is adding
them to the dividend watch list. So the first one is McKesson ticker symbol
MCK that trades in both the U.S. and in Germany under the same ticker. This is a chart of both profits and dividends
per share. And clearly, they’re doing a fantastic job. Profits are doing a fantastic job of covering
their dividends. But this brings us to the issue right now. McKesson only has a dividend yield of about
1 percent. So it makes sense, I think, to add this to
the watchlist in hopes that they one day increase their dividend, which they can clearly do. Okay. Next up, I was considering Glaxo SmithKline
ticker symbol GSK in London and their ADR in the U.S. trades under the same ticker here. The issue is the consistency of their earnings
per share. Their dividend has been quite consistent. But I think that the dividend is frankly a
bit too high. So I think until they get the volatility of
their earnings under control, I think it’s best to keep them on the sidelines for now. Now, I’ve actually gotten a few comments recently
on some of the videos asking do I think that if do I think that dividend stocks are better,
then let’s call them non dividend paying stocks. And I think a lot of that depends on each
of our individual goal of investing. I think they can be much better in some situations. I actually did a video called The Dogs of
the Dow where I analyzed the popular dividend strategy called the dogs of the Dow. And that strategy has done impressively well. So if you’re curious about building a better
dividend portfolio, that could be a good next video to watch. I’ve got a link here. I got a link in the description below. Thank you so much for stick with me all the
way into the video. Hopefully I’ll see over in that video. Thanks. I’ll see in the next one.

27 Comments

  1. My favorite part about Sundays! Keep it up Jimmy

  2. I’m long PFE.. was thinking you might include a potentially riskier play like ABBV (also long). Thx Jimmy!

  3. you make very good videos

  4. Loving these dividend videos but I can't help but wonder if you'll talk about aggressive (growth) stocks.

  5. Siemens, Fresenius, Bayer, Merck.
    They are paying a consistant dividend but the currency exchange rates fluctuates. So Seeking Alpha won't show you that growth.

  6. When I retire I'm definitely going in on JNJ. It makes products that people need even in hard economic times, it has brand recognition, and a very stable dividend. Great video as always!

  7. Did you check out Astrazeneca? Looks like a good business also 🙂

  8. Thanks for sharing these suggestions. Long all three. Was going to suggest SNY, but their div payouts haven't been consistent the past few years despite payout ratios around 30-40% range.

  9. Super happy whenever I get notified of a new video

  10. European healthcare stocks, worth a look, would be Roche, Novartis, Novo Nordisk

  11. I hate healthcare or biotech stocks,

    they are so volatile according to their Phase 1-3 FDA approvals…

  12. I’m new to investing and I’ve been doing a lot of research on a number of different companies and watching all of your videos, I actually started investing because of your channel. However I watched your last video and thought of something that I’ve not really found an answer for before, do you think that in the event of a stock market crash or an economic recession that it would be better to sell your stocks when we see that start to happen and take what you can get and then reinvest once we start to climb back out of the recession, or do you think it’s better to hold your shares and hope that your companies turn out for the better and wait it out?

  13. Maybe BMY would be a good suggestion, as they have had consistent dividend increases, good payout ratio's and are increasing their dividend at a faster rate.

  14. What do you think about Tekla (THW)? They hold a diverse set of stocks. 🤔

  15. Who's a pee'in?, European!

  16. What do you think think of Novartis in this mix? As an International play?

  17. Would a monthly dividend paying company provide a higher rate of return than a quarterly or annually paying one? Or is the difference negligible?

  18. For health care companies I like ABBV and JNJ although PFE has been on my radar.

  19. Switzerland: Roche AG. I own this stock since march 2018. Great capital gain plus growth dividend.

  20. Thanks for the video , I bought Smith & Nephew (UK) which had a decent size dip recently, dividend is 1.8% & payout ratio only 46% . Maybe worth a look .

  21. Another great video Jimmy! I’m watching JNJ

  22. Interesting to look at Astra Zeneca and Novo Nordisk

  23. Thanks for your video! This will help me to select good (long run) dividend stock!

  24. This is awesome, I am long JNJ & PFE, thanks for this

  25. European healthcare stock alternatives might be Coloplast or Novo Nordisk from Denmark, Novartis from Switzerland (22 years dividend strike), or the only German Dividend Aristocrat Fresenius SE, mother company of FMC, even if the Dividend Yield is a bit below 2%…

  26. Jimmy – I was surprised not to see Abbvie in this list. I know from previous videos that you are a big fan of this company.

  27. Great video really love the European stocks you throw in there 👍
    From Denmark, was hopeing you added Novo nordisk the Danish insulin company 😉 great video keep em coming!

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