3 Healthcare Stocks for Dividend Growth: MDT, BDX, CAH

Investors can put the odds of long-term success in their favor in a variety of ways. One way is to buy high-quality dividend stocks such as Dividend Aristocrats, with reliable earnings and solid yields. Another is to combine those high-quality companies with mega-trends that are favorable for long-term growth — like healthcare stocks.

In this article, we’ll take a look at three healthcare stocks representing companies that not only are members of the Dividend Aristocrats list, meaning that they all have at least 25 consecutive years of dividend increases but also are leveraged to the long-term trend of a rising US population.

Investors looking for long-term dividend stocks would do well to examine mega-trends that are on the horizon. An aging US population certainly fits the bill, and we see Cardinal, Medtronic, and Becton, Dickinson as three companies that stand to benefit strongly from this.

All three healthcare stocks offer very long dividend increase streaks, low payout ratios, and strong track records of big annual increases in the payout. Combined, these factors make these companies quite attractive for buy-and-hold dividend investors.

  • Cardinal Health (NYSE:CAH)
  • Medtronic (NYSE:MDT)
  • Becton, Dickinson & Co. (NYSE:BDX)

Healthcare Stocks: Cardinal Health (CAH)

Source: Shutterstock

Cardinal Health is one of the largest drug distributors in the U.S. The company also provides integrated healthcare services to customers, which include hospitals, healthcare systems, pharmacies, surgery centers, clinics, laboratories, physician offices and more.

The core pharmaceutical segment distributes branded and generic drugs and over-the-counter products, along with related products through thousands of distribution points. The medical segment manufactures, sources, and distributes private label medical, surgical and lab products.

Cardinal has exposure to the aging U.S. population because as people get older, they generally require more surgeries and operations, as well as more pharmaceutical products to maintain their health. Cardinal has exposure to both of these sectors, and in particular, we are bullish on the company’s pharmaceutical business thriving in the years to come.

Cardinal’s most recent earnings report was released on May 6, and results missed expectations on both the top and bottom lines. Total revenue was up fractionally year-over-year to $39.3 billion, and earnings-per-share came to $1.53, narrowly missing estimates.

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Pharmaceutical segment revenue of $35.1 billion was essentially unchanged year-over-year, while the medical segment posted a small amount of growth. Cardinal noted that comparables to last year were quite difficult given it saw accelerated purchasing of drugs in the early stages of the pandemic; comparables should normalize in the coming quarters.

Operating profits were down 4% to $511 million in Q3, which was due to contraction in generics demand, which was partially offset by higher sales. Cardinal narrowed its guidance range for the year following the report, with adjusted diluted earnings-per-share now expected to be in a range of $5.90 to $6.05.

Cardinal’s dividend safety remains outstanding today even after its 34-year streak of dividend increases. The company’s payout ratio is still just one-third of earnings, which is near where it has been for years. Cardinal has grown its payout at an average rate of more than 9% annually in the past decade, and the stock yields 3.4%.

Medtronic (MDT)

Medtronic (MDT) sign outside office building representing healthcare stocks

Source: JHVEPhoto / Shutterstock.com

Next in our list of healthcare stocks is Medtronic, a company that develops, manufactures, distributes, and sells device-based medical therapies to a wide variety of customers globally.

Medtronic counts hospitals, physicians, clinicians, and others among its customer base. Medtronic has four operating segments: Cardiovascular Portfolio, Neuroscience Portfolio, Medical Surgical Portfolio and Diabetes Operating Unit.

Medtronic has a bright future given it has a wide array of medical devices and products that all benefit from an aging population. The company’s product portfolio has been crafted to be diverse and deep, covering a wide variety of ailments and procedures.

Given this, as the population ages, and requires more operations, Medtronic stands to gain given it can provide the products needed for those operations.

Medtronic’s most recent earnings release was for the fourth quarter on May 27. Results were slightly better than expectations on both revenue and adjusted profits.

Revenue soared 37% year-over-year to $8.2 billion as Medtronic began to lap weak conditions during the early stages of the pandemic. Adjusted net income soared 162% year-over-year to $2.0 billion, and 159% year-over-year to $1.50 per share.

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Growth was attributed to the neuroscience and cardiovascular businesses, where revenue was up 54% and 45%, respectively, year-over-year for the quarter. U.S. revenue and non-U.S. developed market revenue rose 47% and 20%, respectively, while Emerging Markets revenue was up 44% and comprised 16% of total company revenue in Q4.

The company said it was seeing returns to normal levels of volume in its markets across the world, and provided initial guidance for this year that was above consensus. Medtronic sees 9% organic revenue growth this year, and adjusted diluted earnings-per-share of $5.60 to $5.75.

Medtronic’s dividend was increased for the 44th consecutive year, this time to an annualized payout of $2.52 per share. In the past decade, Medtronic has managed to average a 10% annual increase to its dividend. Even so, its payout ratio is under 50% of earnings, so we see it as quite safe.

The company’s extremely long dividend increase streak, history of double-digit dividend increases, reasonable payout ratio and strong long-term outlook combine to create a very favorable dividend growth stock.

Healthcare Stocks: Becton, Dickinson & Co. (BDX)

The front of a Becton Dickinson (BDX) office in Ontario, Canada.

Source: JHVEPhoto / Shutterstock.com

Our final company is Becton, Dickinson, a medical supplier based in New Jersey.

Becton develops, manufactures and sells medical supplies, devices, lab equipment and diagnostic products to a global customer base. It offers products like catheters, intravenous fluid supplies, vascular care and preparation products, infusion pumps and a host of other related products.

Becton was founded in 1897, produces more than $19 billion in annual revenue, and trades for a market capitalization of $71 billion.

Becton reported second-quarter earnings on May 6 with results coming in better than expected on both revenue and profits. Total revenue in the second quarter was $4.9 billion, 15% higher than the year-ago period and fractionally better than estimates. The company noted that COVID-19 diagnostic revenue totaled $480 million during the quarter.

The company’s BD Medical segment saw revenue rise 7.4% year-over-year to $2.3 billion, which was the result of higher medication delivery and pharmaceutical systems revenue. This growth was due in part to strong sales of syringes for COVID-19 vaccinations, as well as sales of catheters and medication delivery devices.

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Life Sciences revenue soared 42% year-over-year to $1.6 billion, driven by COVID-19 diagnostic testing revenue. International revenue was up 2% to $1 billion in Q2.

Adjusted earnings-per-share soared 25% to $3.19, well ahead of estimates for $3.04. Becton guided for 12% to 14% revenue growth for this year and adjusted earnings-per-share of $12.75 to $12.85.

We see Becton as heavily leveraged to an aging population given it has a large catheter business and supplies one-time use medical products for a wide variety of uses. These include daily maintenance of health conditions as well as surgeries and operations.

Becton stands to gain from a volume perspective in the years to come as the population ages in the U.S., and indeed globally.

Becton has a tremendous dividend increase streak of 49 years, making it one of the longest dividend increase streaks in the market today, second only to the Dividend Kings. The company has managed to average better than 7% annual dividend increases for the past decade, so like the others, it is producing sizable income growth for shareholders.

Even so, the payout ratio is just one-quarter of earnings today, so Becton’s dividend safety is undisputed.

On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.

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