It’s time for another dividend stock purchase and this time I’m following my new dividend investing rules. This week I’m looking at stocks in the Healthcare sector which is currently the lowest value sector in my dividend stock Portfolio as you can see in the following table.
4 Healthcare stocks
I have positions in JNJ and PFE currently in Healthcare. But with just two stocks, I’m interested if there are any additional positions worth considering. First a quick look at my two current stocks, JNJ & PFE.
Johnson & Johnson [JNJ] is a $290B healthcare holding company that has increased its dividend for the last 51 years. Its payout ratio is a reasonable 47.6% with a current dividend yield of 2.6%. As mentioned in a recent post @ DivHut, many of JNJ’s consumer products are well known brands such as Johnson’s baby products, Band-Aid, Tylenol and also Savlon which I remember as being the go-to antiseptic cream in the UK. JNJ’s P/E of 19.7 is higher than the industry average of 18.7.
Pfizer [PFE] is a biopharmaceutical with divisions in Primary Care, Speciality Care / Oncology, Established Products and Emerging Markets; Animal Health; and Consumer Healthcare.
You may know some of PFE’s products from Advil, Robitussin or ThermaCare. Its share price has been dropping a little of late and it’s cheaper than the industry average with a P/E of 17.9 compared to 18.7. Its dividend yield is 3.3% with a dividend ratio of 46%.
So what else is there? Healthcare is a somewhat controversial topic these days with the rollout of the Affordable Care Act and potentially long term changes to the industry.
UnitedHealth Group [UNH] is one of the largest healthcare service provider companies in the US with competition from WellPoint, Aetna, Cigna and Humana. Its dividend yield is fairly low at 1.8% but it has a low payout ratio of 20%. Its P/E of 14.7 is cheaper than the industry average.
Abbott Laboratories [ABT] is a long term dividend champion having increased its dividend each year for the last 41 years. Its dividend yield is 2.2% with a payout ratio of 40%. ABT makes and sells medical products including equipment for Lasik eye correction and markets pharmaceuticals. The P/E ratio is high at 28.7 although this is lower than the industry average of 30.
Dividend stock purchase
I’ve decided to purchase only PFE this time as that’s the only stock meeting my stock purchasing criteria. I consider all 4 stocks to be fairly priced and all have increased dividends in the last 5 years. However the yields of UNH and ABT are below 2% and I think I’ll wait for the yield to increase. Considering both ABT and UNH’s dividend growth rate, I don’t think it’ll take long.
PFE beat JNJ based on yield and growth rate: I’m valuing PFE’s 3.3% yield and 10% average dividend growth over JNJ’s 2.6% yield at 7% growth.
I keep adding to my taxable Vanguard funds in order to obtain cheaper Admiral class expense ratios and to quality for $2 brokerage trades.
So total purchases are:
- $330 Individual Stocks (PFE)
- $750 Vanguard High-Yield Corporate Fund (VWHEX)
These investments should increase my yearly dividend income by about $27.
Full disclosure: I am long PFE & JNJ.
Quote of the day
In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.