Healthcare investors seeking steadily growing income have probably noticed thatHCP, Inc.'s (NYSE: HCP) dividend isn't quite as impressive after the recent spinoff ofQuality Care Properties, Inc.spinoff. The healthcare-focused real estate investment trust still offers a juicy yield, but the shares of certain companies poised to generate increasing profits could generate far more income over the long run. Here's whyAmgen (NASDAQ: AMGN)and Johnson & Johnson (NYSE: JNJ)are better income plays for healthcare investors.
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At recent prices, HCP, Inc.'s $0.37 quarterly payment offers a 5% forward yield, which is higher than J&J and Amgen offer right now. Those who take the long view, though, know that choosing a stock based on its yield alone isn't the best strategy. During the five years leading up to the recent spinoff, HCP raised its payout at a paltry annual rate of 3.68%. Let's look at why you can reasonably expect the dividends of these two healthcare stocks to rise much faster.
Amgen: Blazing raises
California-based blue-chip biotech Amgen recently treated its investors to a 15% raise, hiking its quarterly payout to $1.15 per share for shareholders of record as of Feb. 15, 2017. At recent prices, that's a forward yield of about 3.1%, which you can reasonably expect to rise much higher than HCP's distribution in the years ahead.
Amgen's latest payout hike is actually a bit smaller than Amgen investors have grown to expect since it began paying a dividend in 2011. The latest raise represents an annual growth rate of 26.15% over the past five years. If Amgen continues to raise its payout at this pace, then you'll see a 10% yield on your initial investment in 2021. At HCP, Inc.'s pre-spinoff five-year growth rate, meanwhile, you wouldn't see a double-digit yield on your original investment until 2035.
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Looking at the business, sales of Amgen's top product, Enbrel, are sputtering, but strong sales from other drugs have kept the company's dividend payout ratio at a comfortable 37.5% over the past 12 months. Third-quarter sales of osteoporosis treatment Prolia and calcium-lowering drug Sensipar both rose 18% over the same period last year.
Further ahead, cardiovascular outcome data for Repatha could persuade insurers that the drug's benefits outweigh its $14,000 annual expense for millions of patients who can't control their cholesterol with cheaper statins. Success for this already-approved therapy would go a long way toward maintaining double-digit payout raises for many years to come.
Johnson & Johnson: A perennial favorite
If you're a bit more concerned with long-term stability but would prefer a faster pace of dividend growth than HCP is known for, then consider the world's largest healthcare company. A leading global medical-device segment and a stable of iconic consumer brands that span generations still combine for over half of Johnson & Johnson's total revenue. Its faster-growing biopharmaceutical segment, though, has helped the conglomerate to report adjusted earnings growth for 32 consecutive years.
If you appreciate peace of mind, then you'll love Johnson & Johnson's 54-year track record of consecutive annual dividend increases. During the 31 years that HCP, Inc. maintained its annual payment raises ahead of the recent spinoff, J&J has left HCP in the dust in terms of both dividend raises and share price performance.
At recent prices, J&J shares offer a 2.8% yield, which is less than HCP's right now. However, a cozy 41.6% payout ratio and a stable of blockbuster drugs with surging sales growth suggest that you'll see a much better yield on your initial investment during your retirement years.
Helping J&J make those payments is Imbruvica, which recently became the first chemo-free treatment option for newly diagnosed patients with the most common form of leukemia. Sales of the drug nearly doubled to $905 million during the first nine months of 2016, and it's expected to generate more than $6 billion annually at its peak.
Earlier than many of its peers, J&J realized that investing its immense capital resources beyond its own laboratories offers superior returns. This helps explain how its clinical-stage pipeline boasts more than 30 ongoing late-stage trials that could lead to a steady stream of successful drug launches and a satisfying pace of dividend raises for many years to come.
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