Income or Growth: Which Healthcare Stock Fits Your Portfolio Right Now?

Equity markets have been fairly volatile this year due to rising inflation, geopolitical tensions, and the possibility of a coming recession. However, stocks have still performed well. The S&P 500 is up 7% to date. Even the Nasdaq Composite, which hit correction territory earlier this year, has recovered and is up 12%. It's hard to predict what will happen next, though. Perhaps we will see another sustained bull run, or maybe macroeconomic troubles will once again rear their ugly heads, sending equities sinking. This uncertainty may lead investors to wonder whether they should invest in growth or income-oriented stocks right now. Let's go through some of the things to consider before making that decision.

Image source: The Motley Fool.

Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »

Arguments for both

Growth stocks tend to be more volatile and are typically less likely to pay dividends. The top growth-oriented companies will probably sink more if a hypothetical recession leads to a bear market. On the other hand, corporations in this category have more upside potential. For investors with a sufficiently long time horizon and a higher tolerance for risk and volatility, growth investing may be the way to go. That's the case even if there is a market crash. In fact, that would provide the opportunity to pick up shares of top-growth companies on the dip. Dividend stocks are a different breed. Some of the most reliable dividend payers have dependable businesses that generate consistent revenue and profits.

They have less upside potential than their growth-oriented peers, but they are also less volatile and can offer some stability in case things go awry. The regular dividends they offer also help boost long-term returns through dividend reinvestment. Income stocks are a better pick for investors approaching retirement who want to avoid significant volatility and market losses right before cashing out their 401(k). So, the choice between the two depends on each investor's goals, investment horizon, and other factors.

Now, where should investors turn to find quality income or growth stocks? The healthcare sector may have a reputation as a good place to look for dividend stocks, but it also offers attractive growth-oriented companies. Let's consider one stock in each category.

The growth play

Eli Lilly (NYSE: LLY) has been posting outstanding top and bottom-line growth for a pharmaceutical company of its size. In the first quarter, the drugmaker's revenue jumped by 56% year over year to $19.8 billion, while its earnings per share came in at $8.26, 170% higher than the year-ago period. Eli Lilly is performing well thanks to its dominance in the weight-loss drug market, and there is more where that came from. The company recently launched Foundayo, an oral GLP-1 medicine, which will likely help it expand its addressable market by attracting patients who were hesitant to take injectable drugs.

Eli Lilly also has a deep pipeline within its core therapeutic area and could add at least a couple more drugs to its portfolio within the next five years. Further, the drugmaker has plenty of attractive candidates beyond weight loss, with exciting products across oncology, immunology, neuroscience, and more. Lastly, although it is posting phenomenal revenue and earnings growth, Eli Lilly does pay a dividend, and its payouts have increased by 103.5% over the past five years. Eli Lilly is still a volatile stock that may not be ideal for low-risk income investors seeking stability, but the dividend doesn't make it less attractive.

The income play

For a reliable income program, healthcare investors should strongly consider Johnson & Johnson (NYSE: JNJ). The company has a large portfolio across pharmaceuticals and medical devices, enabling it to generate steady revenue and profits. Its diversified product lineup helps it navigate challenges such as competition and patent cliffs, while the company's deep pipeline is a major asset that allows it to launch brand-new products or secure key label expansions regularly.

Johnson & Johnson's record speaks for itself. The company is a Dividend King, that is, a company with 50 or more consecutive annual dividend increases. Johnson & Johnson's streak is currently at 64, and it should continue going strong for a long time. In the meantime, the healthcare giant is developing new products to boost sales growth, including its Ottava robotic-assisted surgery system. Johnson & Johnson isn't for growth investors. But it has plenty to offer income seekers who are looking to derisk their portfolios.

Prosper Junior Bakiny has positions in Eli Lilly and Johnson & Johnson. The Motley Fool has positions in and recommends Eli Lilly. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.