There is a lot of money flowing into the U.S. healthcare industry. According to the Centers for Medicare and Medicaid Services, total U.S. health care spending in 2022 was $4.1 trillion, and that number has likely increased since then. Healthcare is a great place to look for dividend stocks because people have and will continue to need care.
Pharmaceuticals and insurance are one of the most lucrative parts of the American health care system, so let's start there. I've found two blue-chip stocks trading at bargain prices, with impactful dividends poised to grow in the coming years. Consider them as you put new money into your portfolio this month.
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pfizer (New York Stock Exchange: PFE) is a well-known name in the pharmaceutical industry, dating back to the mid-1800s. The company's COVID-19 vaccine (Comirnaty) and treatment (Paxlovid) sparked a multi-year surge in growth that has since largely dried up. The market has frowned at Pfizer's decline in sales and bottom line profits, with the stock price below pre-pandemic levels.
Still, this stock is attractive for two reasons. First, the dividend yield is an unusually high 6%, the highest level except for the 2008-2009 financial crisis. While a high yield could indicate problems within the company, Pfizer is financially sound. The company just raised its 2024 profit forecast by $0.30 to $2.75-$2.95.
The annual dividend is $1.68 per share, just 61% of the lower end of guidance. Additionally, management chose to highlight Pfizer's commitment to paying and increasing dividends in its most recent third-quarter earnings call.
PFE dividend yield chart
Second, the company used pandemic profits to fund its $43 billion acquisition of Seagen and reposition its pipeline into oncology. Pfizer expects oncology to drive the company's growth through 2030.
As a result, analysts expect Pfizer to reignite growth, with earnings expected to grow by an average of 10.6% over the next three to five years. Given its current price-to-earnings (P/E) ratio of 9.8x, the PEG ratio of 0.9x is convincing, making Pfizer a high-yield bargain with room for further stock appreciation.
united health group (NYSE:UNH) is one of the world's largest companies (in any industry) with annual revenues approaching $400 billion.
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Remember how I said that trillions of dollars flow into the health care system every year? Because of its massive size, UnitedHealth is able to provide more value at a lower price, so it's a big part of that pie. continues to penetrate further. This is a significant competitive advantage in a highly fragmented industry. However, UnitedHealth's success has sometimes been subject to regulatory scrutiny.
But the company continues to grow, and UnitedHealth is able to pay increasingly larger dividends. Management has increased dividends for 15 consecutive years, totaling a whopping 460% in the past 10 years alone. A company that can continue to extract more cash and return it to shareholders is usually a sign of a healthy business, and UnitedHealth definitely fits that bill. Dividends are still only 30% of expected profits, so there's plenty of room for the dividend to continue to snowball.
UNH Dividend Chart
The company's stock trades at a P/E ratio of about 20 times, and analysts expect UnitedHealth to grow earnings by more than 12% annually over the next three to five years. This calculates to a PEG ratio of 1.6, which is still quite reasonable. Generally, I buy blue-chip stocks with a PEG multiple of around 2.0 to 2.5.
UnitedHealth has dominated the overall market over time, so investors could do very well by buying this dominant business at a fair price and letting it compound over time. The stock isn't as good a bargain as Pfizer, but it's cheap enough to make UnitedHealth an attractive buy.
Before purchasing Pfizer stock, consider the following:
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Justin Pope has no position in any stocks mentioned. The Motley Fool has a position in and recommends Pfizer. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.
2 Healthcare Dividend Stocks to Buy in November originally appeared on The Motley Fool.
