It appears that political winds are stirring up the healthcare world lately. We’ve seen several big-name healthcare stocks taking a hit in recent weeks, and the likely culprit is the nomination of Robert F. Kennedy Jr. as the Secretary of Health and Human Services in the new Trump administration.
Kennedy has been quite outspoken during the election phase, expressing his intent for sweeping reforms at agencies like the Food & Drug Administration (FDA). This has, unsurprisingly, introduced a degree of uncertainty for companies that rely on the FDA, with pharmaceutical firms feeling particularly jittery.
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While the future remains uncertain, the market’s reaction has made some of these high-yield healthcare companies more attractive to long-term investors looking for value.
Let’s dive into three stocks that are worth considering now:
AbbVie (NYSE: ABBV), a pharmaceutical heavyweight, has seen its shares slide more than 18% from their peak. But the dip isn’t solely due to political unease. Last year, AbbVie shelled out a hefty $8.7 billion to purchase Cerevel, hoping to capitalize on its pipeline of psychiatric treatments. Surprisingly, Cerevel’s drug for schizophrenia, emraclidine, didn’t pass clinical trials, sparking concerns about the return on that investment.
Though disappointing, this setback doesn’t overshadow AbbVie’s vast portfolio of growing drugs, which continue to offset losses from their previous blockbuster, Humira, which lost patent protection last year. Moreover, AbbVie’s impressive dividend remains rock-solid, boasting a current yield of 3.7% with a payout ratio of just 56% of expected 2024 earnings. The emraclidine hiccup stings, but it’s far from a deal-breaker for AbbVie.
Trading at a forward P/E ratio of 15, AbbVie is projected to achieve an annual earnings growth of 8% to 9% in the long haul. This presents an enticing opportunity to snag a leading dividend stock at a PEG ratio of 1.7, which is a robust value given AbbVie’s growth prospects. If these valuations hold steady, investors could enjoy combined returns—via growth and dividends—averaging 11% to 13% annually over time.
Pfizer (NYSE: PFE) enjoyed a surge in business during the COVID-19 pandemic, but as that demand wanes, the company’s earnings have taken a hit, exacerbated by a negative industry sentiment. That has driven the share price down to less than nine times earnings, an indicator that might falsely suggest Pfizer is on the ropes. Its dividend yield is a significant 6.7%, the highest it’s been since the late-2000s financial crisis.
While a high yield can hint at potential troubles, Pfizer’s fundamentals remain solid. The dividend payout ratio is only 58% of its 2024 earnings forecasts. Pfizer is also pivoting its focus toward oncology, boasting a healthy pipeline with a projected 10% to 11% annual growth in earnings over the next several years.
Right now, investors can snatch a well-backed, high-yield dividend stock in Pfizer at a bargain. The company is committed to maintaining and growing its dividend, and there’s a chance that sentiment will swing back in Pfizer’s favor once the political and industry dust settles, making this a potentially lucrative contrarian bet.
Meanwhile, shares of Johnson & Johnson (NYSE: JNJ), the medical device and pharmaceutical giant, have also slipped, down 18% from their peak. Trading at 15 times its estimated 2024 earnings, J&J continues to wrestle with its talcum powder litigation issues, which could lead to hefty payouts. This decline in stock price does make sense in that context.
Nevertheless, Johnson & Johnson’s incredible fundamentals still stand firm despite these hurdles, making it attractive for long-term investors. The company has a cash reserve of over $20 billion, and any large settlement is likely to be spread out over many years. With a pristine AAA credit rating from Standard & Poor’s, J&J remains a Dividend King.
J&J is constantly innovating and acquiring new assets to ensure continued growth. Analysts predict a 5% to 6% average annual earnings growth for the next three to five years. This bodes well for dividend increases, supported by a modest 50% payout ratio based on 2024 earnings estimates. While J&J isn’t a lottery ticket for instant riches, it offers a generous 3.2% yield with a history of growing dividends. Given its strong footing and steady growth prospects, this stock looks appealing at just 15 times earnings.
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Justin Pope holds no positions in any of the mentioned stocks. The Motley Fool owns shares and recommends AbbVie, Pfizer, and S&P Global. The Motley Fool also recommends Johnson & Johnson. The Motley Fool has a comprehensive disclosure policy.
Published initially by The Motley Fool, “3 Dividend Stocks That Are Screaming Buys in November.”
