FINANCE

2 High-Yield Healthcare Stocks to Buy With Both Hands and 1 to Avoid for Now


There’s one constant you can always rely on. Regardless of what’s happening to the overall economy, people keep racking up higher healthcare bills as they get older. And nowadays there are more folks racking up those bills.

From 1920 through 2020, America’s over-65 population grew nearly five times faster than the total population.

Aging baby boomers pushed older population growth into high gear during the decade between 2010 and 2020. In the latest U.S. Census, the number of over-65 adults rose 38% to 56 million. That was the fastest 10-year growth rate recorded since the 19th century.

Expenses driven higher by growing populations of older adults give healthcare businesses a leg up, but that doesn’t mean they’re universally great investments. Here are two dividend-paying healthcare stocks with above-average dividend yields that look like smart buys this year, plus one that’s best avoided for now.

Healthcare dividend stock No. 1 to buy in 2024: Medtronic

When it comes to heart valves, neurostimulators, insulin pumps, and more, Medtronic (NYSE: MDT) is the company to beat. Steadily growing sales of medical technology have allowed it to raise its dividend payout every year since 1978.

At recent prices, Medtronic offers a 3% yield that investors can reasonably expect to continue rising in the years ahead.

A large collection of related medical technology, and an experienced salesforce gives Medtronic’s new product launches a better chance of success than they’d have if marketed by a smaller competitor. For example, the Food and Drug Administration approved the company’s MiniMed 780G insulin pump last April, which helped total diabetes sales rise 9.7% year over year during its fiscal second quarter that ended Oct. 27, 2023.

Altogether, Medtronic reported fiscal-second-quarter revenue that climbed 5.3% year over year and the company has what it needs to keep growing for years to come. Over the past year, Medtronic reported around 130 product approvals from regulators in four of the world’s largest markets for medical technology. With an effective global salesforce already in place, investors can count on Medtronic to successfully market enough of those newly approved products to keep its bottom line moving forward at a steady pace and that spells good things for the dividend.

High-yield healthcare stock No. 2 to buy in 2024: AbbVie

Last year, AbbVie‘s (NYSE: ABBV) lead drug, an anti-inflammatory injection called Humira, lost patent-protected market exclusivity. Competition from heaps of lower-priced biosimilars pushed third-quarter sales of Humira 39% lower year over year.

At an annualized $12 billion in the third quarter, U.S. sales of Humira could still fall a long way. The drug lost European market exclusivity in 2018 and all international sales have since dwindled to an annualized $2.1 billion.

Fear of Humira’s bottom falling out has pushed AbbVie’s stock price down to just 11.8 times trailing free cash flow. At recent prices, the stock offers a juicy yield near 3.7%.

Humira losses mean we’re unlikely to see huge dividend bumps over the next couple of years. But wise investments made during Humira’s heyday give investors a pretty good chance to realize market-beating gains over the long run.

AbbVie has had remarkable success with two drugs it launched in 2019 that have been taken up by many former Humira patients. Combined sales of Rinvoq, a tablet for arthritis, and Skyrizi, an injection for psoriasis, shot up to an annualized $13 billion in the third quarter.

With recently launched treatments rapidly offsetting Humira losses, investors can look forward to steady gains from this stock in the years ahead.

The ultra-high-yield healthcare stock to avoid for now: Medical Properties Trust

Shares of Medical Properties Trust (NYSE: MPW) offer an eye-popping 18.5% dividend yield using its recent quarterly payout of $0.15. Tempting as that may be, stocks don’t offer double-digit yield percentages unless there’s a problem.

Medical Properties Trust is a real estate investment trust (REIT) that owns 441 hospitals and other acute care facilities spread throughout 31 states and nine other countries. At the end of September, its properties were being run by 55 different operators who signed long-term net leases.

Net leases transfer all the variable costs of building ownership to the tenants. With rent escalators written into long-term leases and a diverse portfolio, this REIT’s cash flows should be highly reliable, but this hasn’t been the case recently.

Multistate hospital operator Steward Health Care has been having a hard time making ends meet. This is a huge problem for Medical Properties Trust because Steward rents roughly 20% of the REIT’s portfolio by asset value.

Investors could reap market-beating gains if Steward gets back on its feet before Medical Properties Trust has to slash its dividend payout again. The July payment was $0.29; the October payment was $0.15. In light of recent warnings of potential Steward hospital closures in Massachusetts, it’s best to keep this REIT stock on a watch list for now.

Should you invest $1,000 in Medtronic right now?

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Cory Renauer has positions in Medical Properties Trust. The Motley Fool recommends Medtronic. The Motley Fool has a disclosure policy.

2 High-Yield Healthcare Stocks to Buy With Both Hands and 1 to Avoid for Now was originally published by The Motley Fool



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