In this article, we discuss 10 healthcare stocks for an income portfolio. If you want to see more healthcare dividend stocks, click 5 Healthcare Stocks for an Income Portfolio.
The healthcare, pharmaceuticals, and biotech space is a big opportunity for investors as the advancement in treatments and therapies for oncology, immunology, and certain rare diseases paves the way for higher revenue generation in the future. The COVID-19 pandemic also drove many medical technology, life-science tools, and diagnostics companies to innovate their product pipelines and improve business fundamentals.
According to Charles Schwab, valuations in healthcare are relatively attractive, and overall, companies have solid balance sheets, which increases the likelihood of higher dividend payouts, authorization of share repurchase programs, and growth in mergers and acquisition activity. An aging global population and people earning more in emerging markets is also a positive tailwind for the healthcare sector, which is set to benefit from the renewed demand for elective procedures as well.
Ash Shehata, the KPMG national sector leader for healthcare and life sciences, noted that despite economic headwinds, the strong healthcare activity momentum in 2021 is likely to continue throughout all or most of 2022. KPMG’s research suggests that 70% of healthcare and life sciences survey respondents expect to raise their M&A activity in 2022, with more than 50% of investors in the space saying that they plan to invest in at least 10% more in the healthcare sector as compared to 2021.
Photo by Adam Nowakowski on Unsplash
Some of the most notable healthcare stocks that are commonly found in income portfolios include Abbott Laboratories (NYSE:ABT), Johnson & Johnson (NYSE:JNJ), and AbbVie Inc. (NYSE:ABBV), in addition to others discussed in detail below.
Our Methodology
We carefully assessed the healthcare market, selecting companies that are major players in the space and offer attractive dividends to shareholders. Positive analyst ratings and strong hedge fund sentiment were classifiers for selecting the following stocks as well.
Healthcare Stocks for an Income Portfolio
10. Encompass Health Corporation (NYSE:EHC)
Number of Hedge Fund Holders: 40
Dividend Yield as of April 22: 1.67%
Encompass Health Corporation (NYSE:EHC) was founded in 1983 and is based in Birmingham, Alabama. The company offers facilities for post-acute healthcare services in the United States, in addition to providing home-based care. Encompass Health Corporation (NYSE:EHC) provides specialized rehabilitative treatment to patients who suffer from neurological disorders, cardiac and pulmonary conditions, brain and spinal cord injuries, orthopedic conditions, and amputations.
On February 25, Encompass Health Corporation (NYSE:EHC) declared a quarterly dividend of $0.28 per share, in line with previous. The dividend was paid on April 18, to shareholders of record on April 1. Encompass Health Corporation (NYSE:EHC)’s dividend yield on April 22 stood at 1.67%.
In 2021, Encompass Health Corporation (NYSE:EHC)’s revenue for the year came in at $5.12 billion, compared to $4.64 billion in 2020. The net income in 2021 stood at $412.2 million, up from the net income of $284.2 million in the prior year.
Truist analyst David MacDonald on April 7 maintained a Buy recommendation and raised the firm’s price target on the shares to $85 from $78, after previewing the Healthcare Services group’s Q1 results. The analyst remains positive on the underlying demand drivers and attractive tailwinds for the industry, with fading COVID impact that should lessen labor pressures while positively impacting the full year. He also added that cash flows remain strong in the industry, and he forecasts continuing and potentially increasing mergers and acquisitions activity.
According to Insider Monkey’s Q4 data, 40 hedge funds were bullish on Encompass Health Corporation (NYSE:EHC), compared to 44 funds in the preceding quarter. The total stakes held in the fourth quarter amounted to $711.5 million. Barry Rosenstein’s JANA Partners is the biggest stakeholder of the company, with 2.8 million shares worth $188.8 million.
In addition to Abbott Laboratories (NYSE:ABT), Johnson & Johnson (NYSE:JNJ), and AbbVie Inc. (NYSE:ABBV), Encompass Health Corporation (NYSE:EHC) is a significant healthcare stock to diversify an income portfolio.
Here is what Heartland Mid Cap Value Fund has to say about Encompass Health Corporation (NYSE:EHC) in its Q4 2021 investor letter:
“COVID complications. Shares of many Health Care companies lagged as the continuing threat of COVID-19 dampened demand for elective medical procedures and health care providers struggled to maintain adequate staffing in the face of burnout and resistance to vaccine mandates. The Strategy’s holdings in the sector trailed the benchmark average, and the group contained a key detractor, Encompass Health Corporation (EHC).
Encompass provides inpatient rehabilitation services as well as home-based health and hospice care. Both businesses enjoy a competitive advantage over many of their peers and, we believe, are well positioned to grow organically, and acquire smaller competitors that could further economies of scale.
A labor shortage has taken a toll on sales and profit margins at Encompass as the company struggles to fill positions in a challenging environment for nursing wages and availability. Revenues have also been hurt by a slowdown in elective surgeries performed, which results in a smaller pool of patients in need of rehabilitation services.
When we took a stake in Encompass late in the summer of 2020, we recognized that COVID-related headwinds could endure longer than anticipated. However, the team believes the current challenges will eventually fade as enhanced nurse recruiting outreach helps mitigate staffing pressures while COVID-19 containment and treatment efforts gain traction. With shares producing an 8% free cash flow yield and trading at just 9x 2022 enterprise value/earnings before interest, taxes, depreciation, and amortization, we believe our patience will be rewarded.”
9. AbbVie Inc. (NYSE:ABBV)
Number of Hedge Fund Holders: 82
Dividend Yield as of April 22: 3.64%
AbbVie Inc. (NYSE:ABBV) is headquartered in North Chicago, Illinois, established in 2013 as a spin-off of Abbott Laboratories. The company manufactures and sells pharmaceuticals worldwide, focusing on different therapeutic areas such as immunology, oncology, neuroscience, and virology.
AbbVie Inc. (NYSE:ABBV)’s full-year revenue for 2021 was $56.1 billion, up 22.69% from the previous year’s revenue of $45.8 billion. The 2021 net income stood at $11.5 billion, compared to an income of $4.6 billion in the last year. The cash and cash equivalents in 2021 increased to $9.8 billion from $8.4 billion in 2020.
On February 17, AbbVie Inc. (NYSE:ABBV) declared a quarterly dividend of $1.41 per share, in line with previous. The dividend is payable on May 16, to shareholders of the company at the close of business on April 15. AbbVie Inc. (NYSE:ABBV)’s dividend yield on April 22 came in at 3.64%, and the company has consistently offered dividend growth since its inception.
Wells Fargo analyst Mohit Bansal on April 13 reiterated an Overweight rating on AbbVie Inc. (NYSE:ABBV) with a $165 price target. The analyst recommends using the weakness in the shares after the departure of Mike Severino, the vice president and chairman of the company, as a buying opportunity. AbbVie Inc. (NYSE:ABBV) has reiterated that Severino’s departure will not be “hugely disruptive to either succession planning or R&D strategy”.
According to Insider Monkey’s fourth quarter database, 82 hedge funds were bullish on AbbVie Inc. (NYSE:ABBV), with collective stakes worth $3.74 billion. Warren Buffett’s Berkshire Hathaway is the leading shareholder of the company, with more than 3 million shares worth $410.74 million.
Here is what Miller Howard Investments had to say about AbbVie Inc. (NYSE:ABBV) in its Q3 2021 investor letter:
“While optimistic about a recovery, we continue to balance our cyclical holdings with dividend-payers in stable, less economically-sensitive industries. We hold three pharmaceutical companies, (which includes) AbbVie (ABBV). All three have strong cash flows and balance sheets, making their high dividends reasonably safe. The investment controversy surrounding these pharma companies is whether they can develop or acquire new products to replace their current blockbuster drugs. The low valuations on these stocks reflects what we believe to be undue pessimism by investors on the prospects for new drugs.”
8. CVS Health Corporation (NYSE:CVS)
Number of Hedge Fund Holders: 71
Dividend Yield as of April 22: 2.16%
Headquartered in Woonsocket, Rhode Island, CVS Health Corporation (NYSE:CVS) provides managed healthcare services, health insurance, and pharmacy benefits. CVS Health Corporation (NYSE:CVS)’s dividend yield on April 22 stood at 2.16%.
CVS Health Corporation (NYSE:CVS) reported a full-year revenue for 2021 of approximately $291 billion, compared to $268 billion in the prior year. The 2021 net income stood at about $8 billion, up from $7.1 billion in 2020.
On April 7, Tigress Financial analyst Ivan Feinseth reiterated a Buy recommendation on CVS Health Corporation (NYSE:CVS) and raised the firm’s price target on the stock to $125 from $122. The analyst observed that the company’s strategy focusing on primary care, paired with an “extensive” retail store network will continue to deliver long-term value for shareholders. CVS Health Corporation (NYSE:CVS)’s strong financial results were driven by its customer-centric healthcare solutions, added Feinseth.
CVS Health Corporation (NYSE:CVS) declared a $0.55 per share quarterly dividend, in line with previous. The dividend will be distributed on May 2, to shareholders of the company as of April 22.
Among the hedge funds tracked by Insider Monkey, 71 funds were bullish on CVS Health Corporation (NYSE:CVS) at the end of December 2021, compared to 61 funds in the prior quarter. The total stakes owned by elite funds in the fourth quarter amounted to approximately $2 billion. Harris Associates is the largest shareholder of the company, with 7.1 million shares worth $734.1 million.
Here is what ClearBridge Investments Sustainability Leaders Strategy has to say about CVS Health Corporation (NYSE:CVS) in its Q4 2021 investor letter:
“Improving health remains a key impact theme for the portfolio, and over the past year or so we have increased our exposure to the health care sector, through the addition of CVS Health, which is well-positioned to help define the future of health care in terms of costs, quality and convenience.”
7. Patterson Companies, Inc. (NASDAQ:PDCO)
Number of Hedge Fund Holders: 25
Dividend Yield as of April 22: 3.12%
Patterson Companies, Inc. (NASDAQ:PDCO) was founded in 1877 and is headquartered in Saint Paul, Minnesota. The company is a provider of dental and animal health products in the United States, the United Kingdom, and Canada. Patterson Companies, Inc. (NASDAQ:PDCO) specializes in biologicals, pharmaceuticals, vaccines, parasiticides, diagnostics, and nutritionals.
Piper Sandler analyst Jason Bednar on March 2 maintained an Overweight rating and a $41 price target on Patterson Companies, Inc. (NASDAQ:PDCO) shares. The analyst said that fiscal Q3 results showed improvement in continued profitability despite revenue missing Street consensus due to omicron headwinds. The management also increased EPS guidance for the third straight quarter, noted the analyst, who projects FY22 EPS to finish at the upper end of this new range and expects the results “should be more than enough to support a move higher today”.
Patterson Companies, Inc. (NASDAQ:PDCO) declared on March 15 a $0.26 per share quarterly dividend. The dividend is payable on May 6, for shareholders of record on April 22. Patterson Companies, Inc. (NASDAQ:PDCO)’s dividend yield on April 22 stood at 3.12%.
According to Insider Monkey’s Q4 data, 25 hedge funds were bullish on Patterson Companies, Inc. (NASDAQ:PDCO), compared to 21 funds in the earlier quarter. The collective stakes held in the fourth quarter amounted to $159.2 million. Israel Englander’s Millennium Management is the biggest position holder in the company, with more than 1 million shares worth $30.45 million.
Here is what Heartland Advisors has to say about Patterson Companies, Inc. (NASDAQ:PDCO) in its Q2 2021 investor letter:
“Patterson Companies Inc. (PDCO) is a leading distributor of dental and animal health products. Sales have been on the rise and the company reported a record $6.1 billion in revenue for the year ending in April. Shares of the business are up double digits through the first half of the year, and the holding has been a solid contributor to performance.
Management at Patterson has done an impressive job of expanding operating margins and making strategic acquisitions that have fit with the business’ core competencies since coming aboard in 2017. However, shares set back late in the quarter, after the company reported better than expected earnings but issued guidance that was more conservative than Wall Street expectations. Due to the ongoing unwinding of pent-up demand in dental services and the strength of Patterson’s animal health line, we believe recent earnings guidance will prove to be overly cautious.
We view recent softness in shares of Patterson as an overreaction and remain constructive on this industry leader that is priced at just .5X sales.”
6. Walgreens Boots Alliance, Inc. (NASDAQ:WBA)
Number of Hedge Fund Holders: 42
Dividend Yield as of April 22: 4.19%
Walgreens Boots Alliance, Inc. (NASDAQ:WBA) was founded in 1901 and is based in Deerfield, Illinois, operating as a pharmacy-led health and beauty retail company. Walgreens Boots Alliance, Inc. (NASDAQ:WBA) sells prescription drugs and wellness, beauty, and personal care products.
On January 27, Walgreens Boots Alliance, Inc. (NASDAQ:WBA) declared a $0.4775 per share quarterly dividend. The dividend was distributed on March 11, to shareholders of the company as of February 18.
Cowen analyst Charles Rhyee maintained an Outperform rating on Walgreens Boots Alliance, Inc. (NASDAQ:WBA) but lowered the firm’s price target on the shares to $50 from $55 on April 12. The analyst updated his estimates after commentary on Q2 results. While he believes his long-term thesis is intact, the near-term macro environment remains a headwind.
Among the hedge funds tracked by Insider Monkey at the end of the fourth quarter of 2021, 42 funds were long Walgreens Boots Alliance, Inc. (NASDAQ:WBA), up from 37 funds in the earlier quarter. Stephen Dubois’ Camber Capital Management is the largest shareholder of the company, with 3.50 million shares worth $182.56 million.
Like Abbott Laboratories (NYSE:ABT), Johnson & Johnson (NYSE:JNJ), and AbbVie Inc. (NYSE:ABBV), elite investors are piling into Walgreens Boots Alliance, Inc. (NASDAQ:WBA) for exposure to healthcare.
Here is what Miller Howard Investments has to say about Walgreens Boots Alliance, Inc. (NASDAQ:WBA) in its Q3 2021 investor letter:
“While optimistic about a recovery, we continue to balance our cyclical holdings with dividend-payers in stable, less economically-sensitive industries. We took a position in Walgreens (WBA) based on its low valuation, high dividend yield, and stable business model.”
Click to continue reading and see 5 Healthcare Stocks for an Income Portfolio.
Suggested articles:
- 10 LNG Shipping Stocks to Buy Now
- 10 Best Stocks To Buy For Beginners Right Now
- 10 Best Value ETFs to Invest in Now
Disclosure: None. 10 Healthcare Stocks for an Income Portfolio is originally published on Insider Monkey.
