In the realm of dividend investing, strategic selection of stocks within evergreen industries can be highly rewarding. Industries that consistently cater to essential needs, regardless of economic conditions, provide a stable foundation for long-term growth. The healthcare sector, with its unwavering significance, embodies such an evergreen industry. This article delves into the healthcare domain, spotlighting two prominent companies that exemplify the sector’s potential for dividend investors.
Evergreen Demand in Healthcare
Industries that offer essential goods and services maintain resilience across varied economic landscapes. Healthcare stands as a prime example, as the demand for healthcare services remains a constant necessity, contributing to an improved quality of life for individuals. This intrinsic value ensures that healthcare remains an enduring and growth-oriented sector.
Leading the Way: Abbott Laboratories
For dividend investors seeking a diversified presence in the healthcare sector, Abbott Laboratories (ABT0.55%) emerges as an intriguing choice. Abbott’s expansive portfolio spans four key business segments, collectively generating $43.7 billion in sales during 2022. The diagnostics segment, featuring innovations like the BinaxNOW COVID-19 rapid test, spearheaded revenue with $16.6 billion. The medical devices segment, encompassing products like FreeStyle Libre continuous glucose monitors, contributed $14.7 billion. Similac infant formula and other nutritional offerings bolstered revenue with $7.5 billion, while the established pharmaceuticals segment, specializing in generic medicines for emerging markets, contributed $4.9 billion.
In addition to its diverse revenue streams, Abbott’s growth prospects shine. Analysts predict a robust 27.5% increase in the company’s non-GAAP diluted earnings per share (EPS) from 2023 to 2026, reaching $5.61. With a dividend yield of 1.9%, surpassing the S&P 500 index’s 1.5%, Abbott appeals to dividend growth investors. Furthermore, the company’s dividend payout ratio, anticipated at around 46% in 2023, underscores its commitment to extending its impressive 51-year dividend growth streak.
Abbott’s valuation offers an enticing proposition. With a forward price-to-earnings (P/E) ratio of 22.9, below the medical devices industry peer average of 24.4, the stock appears attractively priced. Analysts project a 12-month share price target of $125, presenting a compelling buy opportunity given the current share price of approximately $105.
Capitalizing on Health Insurance Demand: Humana
As the global population ages, the demand for healthcare services intensifies. A burgeoning senior citizen demographic signals substantial growth potential in the health insurance sector. Global Market Insights predicts the global health insurance market to grow at a compounded annual rate of 5.5%, expanding from $3 trillion in 2022 to exceed $5 trillion by 2032.
In this context, Humana (HUM0.80%) emerges as a pivotal player. With over 22 million members enrolled in medical, dental, and vision plans, the company is poised to capitalize on the projected industry growth. Analysts forecast Humana’s revenue to exceed $103 billion in 2023, positioning it for significant gains within the dynamic landscape.
The growth trajectory is equally compelling, with analysts projecting an average annual increase of 13.6% in Humana’s adjusted diluted EPS over the next five years, surpassing the healthcare plans peer consensus of 11.7%. Despite a modest starting dividend yield of 0.7%, the company’s growth potential and a projected dividend payout ratio of around 12% in 2023 offer a balanced income profile.
While Humana’s forward P/E ratio of 15.5 exceeds the healthcare plans industry average of 13.9, it remains a valuable proposition considering its remarkable growth potential. Analysts forecast a 12-month share price target of $583, a considerable upside from the current share price of $494.
Conclusion
Navigating healthcare investments offers a glimpse into a sector characterized by evergreen demand and potential for sustained growth. Abbott Laboratories and Humana stand as prime examples of industry leaders, offering dividend investors strategic entry points into this dynamic domain. Abbott’s diversified revenue streams and attractive valuation make it an intelligent choice, while Humana’s emphasis on health insurance and growth potential positions it as an appealing contender. Both companies represent potent investment avenues, aligning with dividend investors’ quest for stable and lucrative opportunities within the healthcare sector.
