Looking for high-yielding dividend stocks? Healthcare's got 'em.
GlaxoSmithKline (NYSE: GSK), Kindred Healthcare (NYSE: KND), Medical Properties Trust (NYSE: MPW), and Sanofi (NYSE: SNY) have at least two things in common: They're all healthcare stocks, and their dividend yields top 4%. Here's why these four high-yielding dividend plays could be stocks to buy right now.
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Big pharma with big dividends
GlaxoSmithKline stands out as the
There is one major concern with Glaxo's dividend, however. The company lost money in the first half of 2016. That means that Glaxo's dividends are being paid from cash that it has stockpiled. Paying dividends while posting net losses can't go on indefinitely.
The management team at GlaxoSmithKline thinks that things are on track for better performance in the days ahead. Newer products, including respiratory drugs Breo and Anoro and HIV drugs Tivicay and Triumeq, are experiencing strong growth. Glaxo also expects shingles vaccine Shingrix and rheumatoid arthritis drug sirukumab to become big winners in the near future.
A long-term (care) dividend play
Long-term and post-acute care (LTPAC) provider Kindred Healthcare hasn't paid dividends for very long. Kindred initiated its dividend program in 2013. At the time, then-CEO Paul Diaz commented that the dividend reflected the company's confidence in its business outlook.
Kindred's dividend yield now stands at 4.88%. That high yield isn't due to any dividend increases, though. It's a result of Kindred's lower stock price. Shares have been on a downward trajectory since September 2015 due largely to concerns about reimbursement changes.
The good news for investors is that Kindred's dividends don't seem to be in any jeopardy. Kindred's dividend payout ratio (net income divided by dividends paid) was 57% in the first half of 2016. The company should be able to continue paying dividends at current levels without any major problems. Despite potential reimbursement headwinds, Wall Street still expects Kindred to grow annual earnings by high-single-digit percentages over the next five years.
Building success stories
Medical Properties Trust isn't a pharmaceutical company like Glaxo or a healthcare provider like Kindred. The company still makes its money from healthcare, though, by leasing buildings to hospitals.
Because Medical Properties Trust is a real estate investment trust (REIT), it must return at least 90% of its net income to shareholders through dividends. This requirement makes the company's current dividend yield of 6.23% one of the best among all healthcare-related stocks.
The main customers of Medical Properties Trust include Prime Healthcare, Median Kliniken, Ernest Health, and Adeptus Health. All of these are major hospital operators with long-term leases. They should continue to be reliable tenants for Medical Properties Trust.
Dividende, s'il vous plait
In case you've forgotten everything you learned in your high school French class, "rendement eleve du dividende" means "high dividend yield." Perhaps an easier French word to remember is Sanofi. The French drugmaker's dividend yield currently stands at 4.41%.
Sanofi has provided one of the highest yields among healthcare stocks over the past five years. Can the company continue to do so? Probably. Sanofi's revenue and earnings are declining, in large part due to lower sales from its diabetes franchise. However, the drugmaker is experiencing strong growth from multiple sclerosis drugs Aubagio and Lemtrada.
Better yet, Sanofi boasts a solid pipeline that could usher in growth for the future. The company has 44 new drugs and vaccines in development or awaiting regulatory approval. That list includes five drugs and four vaccines in late-stage development.
I think all four of these healthcare stocks should continue to pay solid dividends. One of them, though, stands out in my view as the best long-term pick for investors: Medical Properties Trust.
It's not just that Medical Properties Trust claims the highest dividend yield right now. I like this stock best because its business model isn't too terribly risky. Glaxo and Sanofi always face the prospects of a pipeline candidate flopping in a clinical trial or failing to win regulatory approval. Kindred must cope with a challenging reimbursement climate. Medical Properties Trust, on the other hand, can expect to receive lease payments month after month from hospitals that aren't very likely to relocate on a whim.
The stock does, of course, have some risk. If interest rates climb, Medical Properties Trust wouldn't be able to finance expansion as cheaply has it has in the past. There's always a possibility of losing tenants. Still, I think these risks are acceptable in light of the company's dependable revenue stream. Medical Properties Trust just might be the best healthcare dividend stock around.
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