2 Dividend Opportunities in Healthcare

Damien Conover: When thinking about investing and thinking about dividends, one area we like to look at is the pharmaceutical stocks. These stocks tend to pay out a lot of their cash flows in dividends. And for the most part, dividends in the pharmaceutical landscape are fairly safe. Two names that we're highlighting today are AbbVie and Pfizer. Let's take them one at a time.

With AbbVie, this is a stock right now that's paying out a dividend yield that's almost over 6%. So very strong dividend yield and the valuation does look attractive. Now, the reason why there are some concerns about the stock is in about three to four years, they're going to lose patent exclusivity on one of their key molecules, called Humira. But the reason why we like to stock is they've got a great pipeline, and they've made a recent acquisition of Allergan to get even more products. So, you're looking at a much more diversified company. And even in the worst case, that dividend payout ratio only gets to about 65%. So, we think there's plenty of cash flows in the overall landscape for AbbVie to be able to pay out its dividend over the next several years.

The other stock that we like a lot from a dividend perspective, and from a capital appreciation perspective, is Pfizer. Pfizer doesn't have as much--doesn't have as much patent risk. And so you're going to look at much more stable cash flows for this company. You're looking at a dividend yield of over 4% and a pretty safe payout ratio as well. So, when we think about Pfizer, we think the thing that the market's really missing is the next-generation molecules that Pfizer's bringing to the market. They're really focused in oncology and immunology. And these are the two areas you really want to be focused in because you have very strong pricing power. We think as Pfizer brings out these next-generation molecules, the earnings will grow and the overall ability to continue to pay off the dividend will grow as well.

So, in summary, when we think about investing and we want dividend yield, pharmaceutical stocks are generally a great area to look at. And we think AbbVie and Pfizer are two good names to be looking at for both capital appreciation and dividend yield.