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3 Buy-Rated Healthcare Dividend Stocks for Income Investors

Barchart - Fri Nov 24, 2023

Healthcare stocks have always had a recession-resistant reputation for shrugging off economic downturns, since aging and illnesses tend to operate well outside the bounds of traditional business cycles. And as baby boomers continue to hit their retirement years in waves, the aging U.S. population should provide steady demand for healthcare services well through the end of the decade.

For investors seeking top healthcare stocks, we've selected a few buy-rated names on Wall Street that not only dish out dividends, but have a history of increasing their shareholder payouts, too. Plus, all three picks have outperformed the broader market this year, and they've got a track record of beating on earnings. Here's what you need to know.

Cencora: A Diverse Pharma Firm with a Long Dividend History

Meet Cencora Inc. (COR), formerly AmerisourceBergen - a pharmaceutical solutions specialist that offers services in areas including pharmacy, providers, health systems, distribution, and veterinary care. In 2023, this stock has been on fire, adding more than 21% - compared to a gain of 18% for the S&P 500 Index ($SPX).

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COR has been beating Wall Street's earnings estimates for four quarters straight, as rising demand for weight-loss drugs has helped to offset a waning COVID-19 market. In the most recent quarter, Cencora reported stronger-than-forecast EPS of $2.86, on an adjusted basis, while revenue of $68.92 billion also beat estimates. Looking ahead to fiscal 2025, analysts are targeting EPS growth of more than 9%, on average.

Income investors should note that COR has been paying dividends since 2002, with consistent annual increases. The forward yield of 1.03% is supported by a modest payout ratio of 16%, indicating plenty of room for future growth.

What do the analysts say? Among 12 analysts tracking the shares, the consensus rating is a “moderate buy.” Nine of them are shouting "strong buy," while three are playing it cool with a “hold rating.” The mean price target of $209.58 suggests upside potential of about 5% from current levels.

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Novo Nordisk: The Weight-Loss Giant Racks Up Gains

Novo Nordisk A/S (NVO) has exploded higher on the strength of its blockbuster diabetes and weight-loss drugs, including the much buzzed-about Wegovy. Valued at $461 billion, NVO is firmly in mega-cap stock territory. In fact, the success of Wegovy helped NVO overtake the French luxury group LVMH as Europe’s most valuable company. 

In 2023, this stock's been a star player - not just relative to the broad-based S&P, but even compared to the tech-focused Nasdaq Composite ($NASX). NVO has surged more than 54% this year, easily outpacing the Nasdaq's 36% rally.

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The popularity of NVO's blockbuster drugs is reflected in its stronger-than-forecast earnings. In the most recent quarter, EPS of $0.73 surpassed expectations, while revenue of $8.58 billion also beat the Street.

Novo Nordisk has a 5-year dividend growth rate of 10.15%, and with a payout ratio at less than 50% of earnings, there's room to grow the current dividend yield of 0.85%.

Experts are loving what NVO's serving up. Among eight analysts in coverage, seven are calling it a “strong buy,” and one calls it a “moderate sell.” The mean target price of $115.10 is about 11.4% higher than current levels. 

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Zoetis: Leading the Pack in Healthcare Dividends

Zoetis Inc. (ZTS), spun off from pharma giant Pfizer (PFE) roughly a decade ago, is a major player in the veterinary health scene, cooking up medicines, vaccines, and diagnostics for both farm animals and pets. This stock's been on a roll in 2023, rallying over 23% so far to outpace the broader market. 

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In its latest quarterly report, ZTS edged past Wall Street estimates by reporting adjusted EPS of $1.36, even as revenue of $2.15 billion missed the mark. Analysts are targeting 10% EPS growth for this fiscal year and the next, on average.

Zoetis has a five-year dividend growth rate of 25.4%, backed by a payout ratio of 27.7% - indicating ample room for the dividend to keep growing. Currently, the forward yield is 0.84%.

Experts are feeling the bullish vibe. Eleven analysts are giving ZTS a consensus “strong buy" rating, with 10 giving the stock their highest endorsement, and only one tempering their enthusiasm with a “moderate buy.” The mean target price of $220.60, meanwhile, is a 23% premium to current levels.

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Wrap-Up

In conclusion, healthcare dividend stocks present a compelling investment opportunity. Companies like Cencora, Novo Nordisk A/S, and Zoetis offer not only stable income through dividends, but also exposure to the recession-resistant healthcare space. For investors seeking out defensive plays with upside potential, these stocks are worth a look heading into 2024.


On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.