Just when you thought it was starting to look safer, yet another COVID-19 variant comes around. With the Omicron variant comes the potential for renewed restrictions and lockdowns. There was some discussion about how Omicron symptoms may be milder than other variants. In addition, existing vaccines are still expected to provide some protection, and it also appears they can perhaps be tweaked to account for the new strain.
With December here and 2021 almost over, many investors are looking to the holidays. One thing is for sure, and that is the stock market is very overbought. Some of the momentum stock trades are very crowded and have been hit hard during recent sell-offs. With interest rates remaining very close to generational lows, top-quality dividend health care stocks may be the way to go for the rest of 2021 and in 2022.
Concern over the Omicron variant has scared investors fleeing to the Treasury market yet again, causing yields to tumble to levels posted in early November. While not the lowest of the year, the inflation-adjusted yield for the 10-year Treasury is a stunningly bad −4.7%, the lowest since 1974.
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Now is the time to reduce risk and more to safer ideas. Often when more conservative income investors look for companies paying big dividends they are drawn to the Dividend Aristocrats, and with good reason. The 65 companies that made the cut for the 2021 S&P 500 Dividend Aristocrats list have increased dividends (not just remained the same) for 25 years straight. However, the requirements go even further, with the following attributes also mandatory for membership on the aristocrats list:
- Companies must be worth at least $3 billion at the time of each quarterly rebalancing.
- Average daily volume must be at least $5 million in transactions for every trailing three-month period at every quarterly rebalancing date.
Five health care Dividend Aristocrats make good sense now for worried investors. They are excellent ideas during this new round of turmoil, and all are Buy rated at top Wall Street firms. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Abbott Labs
This top pharmaceutical and med-tech stock has very solid growth potential. Abbott Laboratories (NYSE: ABT | ABT Price Prediction) manufactures and sells health care products worldwide.
Its Established Pharmaceutical Products segment offers branded generic pharmaceuticals to treat pancreatic exocrine insufficiency; irritable bowel syndrome or biliary spasm; intrahepatic cholestasis or depressive symptoms; gynecological disorders; hormone replacement therapy; dyslipidemia; hypertension; hypothyroidism; Ménière’s disease and vestibular vertigo; pain, fever and inflammation; migraines; anti-infective clarithromycin; cardiovascular and metabolic products; and influenza vaccines, as well as to regulate physiological rhythm of the colon.
The Diagnostic Products segment provides immunoassay and clinical chemistry systems; assays used to screen or diagnose cancer, cardiac, drugs of abuse, fertility, infectious diseases, and therapeutic drug monitoring; hematology systems and reagents; diagnostic systems and cartridges; instruments to automate the extraction, purification and preparation of DNA and RNA from samples, and detect and measure infectious agents; genomic-based tests; informatics and automation solutions; and a suite of informatics tools and professional services.
Abbott Laboratories stock investors receive a 1.43% dividend. Morgan Stanley’s $146 price target is well above the $115.53 consensus target. The shares closed Tuesday’s trading session at $125.77.
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AbbVie
This is one of the top pharmaceutical stock picks across Wall Street. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company develops and markets drugs in areas such as immunology, virology, renal disease, dyslipidemia and neuroscience.
One of the biggest concerns with AbbVie is what might happen eventually with anti-inflammatory therapy Humira, which has some of the largest sales for a drug ever recorded. The company was concerned, so in June of 2019 it announced that it has agreed to pay $63 billion for rival drugmaker Allergan, the latest merger in an industry in which some of the biggest companies have been willing to pay a high price to resolve questions about their future growth. The purchase officially closed in May of last year.
AbbVie may be nearing the limits of how far it can boost Humira’s price as cheaper competitors come to market, a problem Allergan is already grappling with as more alternatives to Botox emerge.
Shareholders receive a 4.89% dividend. Truist Securities has a $135 price objective on AbbVie stock. The consensus target is $127.78, and shares ended trading on Tuesday at $115.28.
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Johnson & Johnson
With a diverse product base and a very popular and solid brand, this is among the most conservative big pharmaceutical plays, and vaccine demand could spike again. Johnson & Johnson (NYSE: JNJ) is one of the top market cap stocks in the health care sector and raised the dividend for shareholders this year for the 56th consecutive year.
With everything from medical devices to over-the-counter health items and prescription drugs, the company remains one of the most diversified health care names on Wall Street. It also has one of the most exciting pipelines of new drugs in the sector. All that makes the stock an outstanding holding for conservative investors with a long-term investment outlook.
Johnson & Johnson generates a little over half of its sales in international markets, which are expected to see higher spending on health care over the next 10 years and beyond.
Shareholders receive a 2.72% yield. The BofA Securities price target is $200, while the consensus target is $188.29. Johnson & Johnson stock closed at $155.93 on Tuesday.
Medtronic
This medical technology giant is a solid pick for investors looking for a safe position in the health care sector. Medtronic PLC (NYSE: MDT) develops, manufactures, distributes and sells device-based medical therapies to hospitals, physicians, clinicians and patients worldwide. It operates in four segments: Cardiac and Vascular Group, Minimally Invasive Therapies Group, Restorative Therapies Group and Diabetes Group.
The company announced in 2020 that Blackstone’s life sciences division will invest $337 million into the research and development of its diabetes device technologies. Under the terms of the agreement, Medtronic will receive funding for four diabetes R&D programs over the next several years. Medtronic’s engineering, clinical and regulatory teams will conduct the development work for the programs.
Investors are paid a 2.36% dividend. The $145 Morgan Stanley price target compares to the $139.85 consensus target for Medtronic stock. Shares closed on Tuesday at $106.70.
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Walgreens
This huge drugstore chain operator is a safe retail play for investors looking to add health care now. Walgreens Boots Alliance Inc. (NASDAQ: WBA) operates as a pharmacy-led health and beauty retail company. It operates through three segments.
The Retail Pharmacy USA segment sells prescription drugs and an assortment of retail products, including health, wellness, beauty, personal care, consumable, and general merchandise products through its retail drugstores. It also provides specialty pharmacy services and mail services; this segment operates nearly 10,000 retail stores under the Walgreens and Duane Reade brands in the United States; and six specialty pharmacies.
The Retail Pharmacy International segment sells prescription drugs; and health and wellness, beauty, personal care, and other consumer products through its pharmacy-led health and beauty stores and optical practices, as well as through boots.com and an integrated mobile application. This segment operated 4,428 retail stores under the Boots, Benavides, and Ahumada in the United Kingdom, Thailand, Norway, the Republic of Ireland, the Netherlands, Mexico, and Chile; and 550 optical practices, including 165 on a franchise basis.
The Pharmaceutical Wholesale segment engages in the wholesale and distribution of specialty and generic pharmaceuticals, health and beauty products, and home health care supplies and equipment, as well as provides related services to pharmacies and other health care providers.
Investors receive a 4.26% dividend. Baird has set a $68 price target on Walgreens Boots Alliance stock. The consensus target is just $53.02, and shares were last seen on Tuesday at $44.80.
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For years, health care was one of the most dependable sectors, especially for investors who are more conservative. However, over the past five years, the sector, while delivering positive total returns, has massively underperformed some of the more popular sectors like technology. In fact, right now health care trades near the greatest valuation discount to the S&P 500 since 1990, making these stocks great ideas for the coming year.
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