There is a lot of money flowing through the healthcare industry in the United States. According to the Centers for Medicare & Medicaid Services, America’s total health expenditures reached $4.1 trillion in 2022, and that number has likely increased since then. People have always needed and will always need care, so healthcare is a great place to look for dividend stocks.
Drugs and insurance are among the most profitable pockets of America’s healthcare system, so start there. I found two Blue arrows Trading at competitive prices, with impressive profits expected to grow over the coming years. Keep them in mind when putting new working capital into your portfolio this month.
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Pfizer (NYSE: PFE) It is a household name in the pharmaceutical industry, dating back to the mid-19th century. The company’s COVID-19 vaccine (Comernaty) and treatment (Baxlovid) caused a growth spike that lasted for a few years, but has since largely stalled. The market has been upset by Pfizer’s declining top and bottom line earnings, pushing its stock price below what it was. Before the pandemic.
However, the stock is compelling for two reasons. First, dividend yields were abnormally high at 6%, the highest level except for the financial crisis of 2008-2009. High returns could indicate there is a problem within the company, but Pfizer is financially sound. The company just raised its 2024 earnings guidance by $0.30 to between $2.75 and $2.95.
Annual earnings are $1.68 per share, which is just 61% of the lower end of this guidance. Additionally, management has been keen to emphasize Pfizer’s commitment to paying and increasing its dividend recently Q3 earnings call.
Second, the company redirected its pipeline toward oncology, using its profits from the pandemic to fund a $43 billion acquisition of… visual. Pfizer expects oncology to drive the company’s growth through 2030.
As such, analysts estimate that Pfizer will revive growth, calling for earnings growth to average 10.6% over the next three to five years. That’s a compelling PEG ratio of 0.9 at the stock’s current price-to-earnings (P/E) ratio of 9.8, making Pfizer a high-yield bargain with additional share price upside.
UnitedHealth Group (NYSE: UN) It is one of the largest companies in the world (regardless of industry), with annual revenue approaching $400 billion.
Remember how I mentioned that trillions of dollars flow through the health care system every year? UnitedHealth continues to eat more of this pie because its sheer size allows it to offer more value at cheaper prices. It’s a huge competitive advantage in a highly fragmented industry. However, UnitedHealth’s success has sometimes attracted regulatory scrutiny.
However, the company continued to grow, allowing UnitedHealth to pay increasingly larger dividends. Management has raised the dividend for 15 consecutive years, including a whopping 460% increase in total increases over the past decade alone. A company that can continue to take more money and give it to shareholders is usually a sign of a healthy business, and UnitedHealth certainly fits that bill. Dividends still represent only 30% of estimated earnings, so there’s plenty of room for this snowball to continue rolling and growing.
The stock trades at roughly 20 times earnings, and analysts estimate that UnitedHealth will grow earnings more than 12% annually over the next three to five years. This results in a PEG ratio of 1.6, which is still very reasonable. Generally, I would buy quality stocks with PEG ratios around 2.0 to 2.5.
UnitedHealth has beaten the broader market over the long term, so investors could do very well by buying this dominant company at a fair price and letting it compound over time. The stock isn’t quite a bargain like Pfizer, but it’s cheap enough to make UnitedHealth a compelling buy.
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Justin Pope He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends UnitedHealth Group. The Motley Fool has Disclosure policy.
2 Healthcare Dividend Stocks That Scream to Buy in November Originally published by The Motley Fool