There’s no doubt that the aging population is one of the most powerful trends in the U.S. economy. The U.S. Census tallies some 75 million Baby Boomers, those aged 51-69 years.
With thousands of people entering retirement each day in America, that huge swell of Baby Boomers likely means a long-term increase in health-care spending in the U.S.
For investors, this trend could be very profitable. Higher demand for health care is a strong tailwind for the health-care sector. A number of highly profitable, health-care dividend stocks stand to benefit from the growing population of elders.
Three companies that have significant businesses catering to the aging demographic are Abbott Laboratories (NYSE: ABT), Johnson & Johnson (NYSE: JNJ) and Medtronic (NYSE: MDT).
Strongest Health-Care Dividend Stocks
Each of these health-care dividend stocks is a large-cap blue chip. Abbott has four major businesses ̶ nutrition, diagnostics, medical devices and pharmaceuticals ̶ each of roughly equal size. It should benefit from the aging U.S. population, as Abbott controls more than 50% of global sales of adult nutrition products last year, led by its flagship Ensure brand.
Abbott only grew revenue by 0.8% last year, because of the strong U.S. dollar. The huge rally in the dollar over the past year has made exports less competitive and reduces the value of revenue generated overseas. This wiped out more than eight percentage points of Abbott’s revenue growth last year, which masked its true performance. Excluding negative currency effects, Abbott’s organic revenue grew 9% last year.
Abbott is also growing through acquisitions. It bought out St. Jude Medical (NYSE: STJ) this year for $25 billion. The merger enhances Abbott’s growth because St. Jude is a major player in medical devices, specifically in cardiovascular, diabetes and vision related devices. Abbott expects the deal to add to earnings in the first year after closing with earnings growth accelerating thereafter.
Abbott has declared 370 consecutive quarterly distributions, going all the way back to 1924, and it has increased its dividend for 44 consecutive years, including an 8% bump last year.
J&J is a health-care conglomerate. Roughly 70% of its revenue is derived from businesses that are No. 1 or No. 2 in their industries. As a result, J&J grew its adjusted earnings for the past 31 years in a row, and it is one of only two U.S. companies with a “AAA” credit rating from Standard & Poor’s.
Last year, excluding currency exchange and divestment, J&J’s organic sales rose 6.5% for the year, and adjusted earnings rose 5.8%. All three of J&J’s reporting segments ̶ pharmaceuticals, consumer health products, and medical devices ̶ saw an increase in revenue last year. Medical device sales increased 2%, consumer products sales were up 4%, and pharmaceutical sales grew 11%.
J&J is off to a good start to 2016 as well. Organic sales increased 6% in the first quarter, and its adjusted EPS rose 10%.
Going forward, J&J should benefit from the aging population. The company has more than 100 drugs marketed, 35 of which generate more than $100 million in annual revenue. And, 11 of them generate at least $1 billion in sales.
In April, J&J raised its quarterly dividend by 6%. It has raised its dividend for 54 consecutive years.
Like Abbott, Medtronic has pursued an aggressive acquisition strategy to produce growth. Last year, the company closed on its massive $49.9 billion takeover, which expanded Medtronic’s position in hospital supplies.
The acquisition boosted Medtronic’s total revenue to $28.83 billion last year, up 42% from the previous year. Even excluding the acquisition, Medtronic’s revenue grew 7% adjusting for currency.
On June 24, Medtronic raised its dividend by 13%, to $0.43 per share. The annualized payout will go to $1.72 per share. This represents the 39th consecutive annual dividend increase for Medtronic. According to the company, its dividend growth rate over these 39 years is 18% compounded annually, and the company has nearly quadrupled its dividend in the past decade alone.
Growth Ahead for Health-Care Dividend Stocks
In addition to their strong business models, each of these health-care dividend stocks offers above-average dividend yields as compared to the S&P 500, and dividend growth each year as well.
Abbott, J&J, and Medtronic yield 2.7%, 2.7%, and 2%, respectively. All three stocks are blue-chip health care giants that could realize significant future growth thanks to the aging population.
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