What Is Considered a Good Dividend Stock? 3 Healthcare Stocks That Fit the Bill
Key Points
Medtronic is approaching five decades of dividend growth.
AbbVie rose to the challenge when its Humira patent expired, cementing its sterling reputation.
Johnson & Johnson is a model of consistency and excellence among dividend stocks.
- 10 stocks we like better than Medtronic ›
Dividend investing, like most things in life, can be rewarding if done correctly or a headache if you make crucial mistakes. The key to dividend investing is to pick the right types of dividend stocks. But what does a good dividend stock look like?
It will be hard to go wrong if you invest in companies with these three traits:
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- Operating in large industries with room for growth.
- Consistently profitable, with strong balance sheets.
- Already paying a dividend, with a track record of increasing it.
The healthcare industry is a behemoth, with annual expenditures totaling $4.9 trillion in the United States alone. It's a great place to look for dividend stocks you would want to own.
Here are three healthcare stocks that fit the bill, making them excellent additions to any dividend investor's long-term portfolio.
Image source: Getty Images.
1. Medtronic
Leading healthcare companies have built sterling reputations through decades of excellence. Medtronic (NYSE: MDT) certainly fits that bill. The healthcare technology company develops products for treating a wide range of conditions across its four focus areas: Cardiovascular, diabetes, medical-surgical, and neuroscience. It's an engine for constant innovation, with over 190 active clinical trials and 43,000 active patent matters. In total, Medtronic has treated over 78 million patients and operates globally.
Medtronic has a storied history of dividend growth, including 47 consecutive annual dividend increases. Upon its 50th consecutive increase, it will become a Dividend King, part of a small group of elite companies that have maintained uninterrupted dividend growth for five decades or more. Additionally, Medtronic yields 3.2% at its current share price, providing a solid starting yield to complement its consistent growth.
Medtronic is not resting on its success and is making some bold moves to keep driving growth. It's spinning off its diabetes business to focus on higher-margin areas and is developing its first robotic surgery system. Overall, analysts estimate that Medtronic will grow earnings by an average of 6% to 7% annually over the next three to five years, positioning the stock to become a Dividend King.
2. AbbVie
Pharmaceutical giant AbbVie (NYSE: ABBV) is a leader in one of the most lucrative segments (pharmaceuticals) in the healthcare industry. Its success with Humira, a top-selling drug for years, built AbbVie into an industry giant. The company has pivoted masterfully since the expiration of Humira's patent in 2023. Emerging star drugs Rinvoq and Skyrizi appear to be home runs, and AbbVie's $63 billion acquisition of Allergan, the maker of Botox, helped bolster its product portfolio and pipeline.
AbbVie has only been around since its 2013 spin-off from Abbott Laboratories. However, the stock still gets credit for those pre-spin-off decades of dividend growth, making AbbVie a Dividend King with 53 consecutive increases. Shareholders have enjoyed a potent combination of yield and growth. The stock yields 3.5%, and AbbVie has raised its dividend by an average of 7.7% over the past five years.
Now, AbbVie's future looks as bright as ever. Analysts expect AbbVie to generate just shy of $60 billion in revenue this year, a record high, and for earnings to grow by an average of 13% annually over the long term. Sustained success in the pharmaceutical world depends on strong product development, and AbbVie's ability to quickly retool for growth post-Humira speaks volumes about the company's world-class quality and execution.
3. Johnson & Johnson
In a crowded industry, Johnson & Johnson (NYSE: JNJ) may have the most widely recognized name of any healthcare company. Once known for its popular consumer products, such as Tylenol and Band-Aid, Johnson & Johnson spun off its consumer segment as Kenvue in 2023, allowing the company to focus on growth in pharmaceuticals and medical devices.
Johnson & Johnson is a legendary stock for multiple reasons. It's one of just two publicly traded companies with an AAA credit rating. That's even higher than the U.S. government, which can essentially print money to pay its bills. Additionally, the company has paid and raised its dividend for a whopping 62 consecutive years.
Analysts estimate that the company will grow earnings by an average of just over 6% annually over the next three to five years. Given the fortress-like balance sheet and a dividend payout ratio of only half the company's 2025 estimated earnings, the steady growth is sufficient to fund dividend increases for years to come. Plus, investors start with a generous 3.3% yield. Johnson & Johnson's clockwork-like consistency makes it an ideal dividend stock to buy and hold, and then reinvest the dividends, maximizing the stock's total returns by enhancing the compounding effect over time.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, and Kenvue. The Motley Fool recommends Johnson & Johnson and Medtronic and recommends the following options: long January 2026 $13 calls on Kenvue, long January 2026 $75 calls on Medtronic, and short January 2026 $85 calls on Medtronic. The Motley Fool has a disclosure policy.
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