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Top Dividend Stocks in Healthcare

We like Pfizer, Roche, Allergan, and Medtronic in this space.

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Damien Conover: We are talking about dividends in the healthcare sector today. When we think about dividends within this sector, most of the companies that are going to be paying dividends are in the large-cap pharmaceutical or large-cap biotechnology space. Most of these dividends in their history have been very, very safe, and we think that's very likely to be the case going forward. These firms generate enormous amounts of cash flows and can really support strong dividend payouts.

A couple of names we want to highlight as far as stocks that we think are both undervalued and have strong dividends are, first within the pharmaceutical space, will be Pfizer. Pfizer is a name that has a nice growth potential, not a lot of patent losses, and is really set up well to pay out a continual stream of dividends. This is a firm that we think is undervalued and underappreciated with a very strong pipeline. That pipeline will really help the firm be able to generate that future cash flow that will be needed for the dividend.

Another name within the pharmaceutical-biotech space is Roche. Roche is a name, we think, is significantly undervalued, paying out a nice dividend. What we think investors miss here is really the recently launched products. A very strong lineup in oncology, a strong lineup in multiple sclerosis, two areas that have very strong pricing power. The strong pricing power will enable very strong cash flows into the future and a very strong dividend yield for this firm.

One other firm we want to talk about within the pharmaceutical landscape is Allergan. Allergan, we think, is significantly undervalued and has strong growth potential from products already launched and a franchise within Botox that we think will not be disrupted by competitive threats.

Now, outside the pharmaceutical landscape, there are a few other areas that look interesting to us still within healthcare that pay strong dividends. The one that we are highlighting is Medtronic. Medtronic right now, we think, is somewhat out of favor because it's a little bit behind its innovation cycle with its new products. Nevertheless, Medtronic is very well-positioned in working with hospitals to provide value-add services. These services and products should really enable the firm to drive strong cash flows and again, support a very good dividend into the future.

Again, when thinking about overall dividends, these are a few areas, we think, are best-positioned within the healthcare sector.

Damien Conover does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.