Would you like a stock portfolio that generates enough passive income to fuel your retirement dreams? If you answer yes, like most investors, you need to take a look at the healthcare sector.
In the United States alone, healthcare spending reached a staggering $4.3 trillion in 2021. Unlike most areas of the economy, healthcare services are a priority in both good and bad economic times. This motivated consumer base allows many companies to reliably grow profits.
These three healthcare companies currently offer above-average dividend yields and have a history of increasing their payouts. That's why investors who buy them now could end up with a substantial passive income stream that continues to grow for the rest of their lives.
1. Medtronic
Medtronic (MDT -2.13%) offers the lowest dividend yield on this list. At 3.1%, however, it is significantly higher than the average stock in the S&P 500 index, which currently offers a yield of 1.7%.
With over US$1.5 billion in annual sales, Medtronic sells more medical devices than any other company in the world. It produces common items found in almost every hospital room. The company also leverages its status as a one-stop shop for healthcare professionals to promote innovative new products.
About 40 years ago, Medtronic launched the MiniMed insulin pump. Recently, it took a step into the multibillion-dollar US market for minimally invasive surgical procedures. A clinical trial of its robotic-assisted surgery system, called Hugo, began in the United States last December.
Medtronic's consistent rollout of innovative new devices has served investors well. The company recently announced its 45th consecutive annual dividend increase. Investors who buy the stock now will likely see the 3.1% yield they receive continue to rise long enough to fuel their retirement dreams.
2. AbbVie
AbbVie (ABBV -0.12%) is a pharmaceutical giant that spun out of the healthcare conglomerate, Abbott Laboratories, in 2013. Abbott wanted to protect itself from the loss of patent-protected exclusivity for Humira that is happening in the United States now. In January, Amgen launched a biosimilar version called Amjevita, available at a list price 55% lower than the list price of Humira.
Humira's U.S. revenue reached $4.97 billion in Q3 2022, and that number could be cut in half this year. That's why AbbVie shares offer a yield of $4.11, more than double the average yield of dividend-paying stocks in the S&P 500 index.
Before you let Humira's demise scare you away from this high-yield stock, the company made some smart investments with the immense cash flows it provided. For example, Rinvoq for arthritis and Skyrizi for psoriasis, both of which AbbVie launched in 2019, are already on track to generate over $17.5 billion in combined annual sales for AbbVie by 2025.
AbbVie's highly profitable operation produced a staggering $1.9 billion in free cash flow over the past 12 months, and the company needed just $45 billion of that to meet its dividend commitment. With newer products to offset Humira's losses, continuing its decade-long streak of annual dividend increases should be a no-brainer.
3. Medical Property Trusts
As the name suggests, Medical property funds (MPW -2.35%) is a real estate investment trust (REIT). As such, it can avoid paying income tax as long as it distributes at least 90% of its profits to shareholders as a dividend. Currently, its dividend offers an attractive yield of 9.1%.
Medical Properties Trust is one of the largest owners of hospitals and acute care facilities on the planet, which is a great business to be in. Hospital spending in the United States increased by 4.41 trillion in 2021, reaching US$1.3 trillion.
Medical Properties Trust has increased its dividend every year for 10 consecutive years. It's extremely reliable because, instead of managing the hospitals it owns, it hires hospital employees to sign long-term contracts.
Inflation isn't a major concern for this stock because annual rents are already built into its long-term leases. Medical Properties Trust's preferred net leases also shift responsibility for all variable property costs, such as maintenance and property taxes, to its tenants. With hyper-reliable cash flows, this could be the best healthcare dividend stock on the planet.
Cory Renauer holds no positions in any of the stocks mentioned. The Motley Fool holds positions in and recommends Abbott Laboratories. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.
