2 healthcare stocks you can buy and hold for the next decade
Investors have been stuck on a roller coaster of volatility in the global market for nearly two months, leading some to consider dividend-paying stocks to cushion the fall. Corn Abbott Laboratories (NYSE:ABT) and UnitedHealth Group (NYSE:UNH) giving investors more of a reason to be comfortable investing in these dividend-paying healthcare companies for the next decade.
Abbott Labs: A newly crowned king with double-digit revenue growth
Abbott is a large pharmaceutical company known for its medical devices, diagnostics, and pediatric and adult nutritional products — think Pedialyte or Similac. This year he is crowned dividend king, meaning the company has increased its annual dividend for 50 consecutive years.
Third quarter revenue increased 23% year over year. Excluding COVID testing sales, Abbott still posted an increase of nearly 12% over pre-pandemic 2019 sales for the quarter. To put that figure more into perspective of its strength, Abbott’s main competitors — Abbie, AgilentTechnologiesand Johnson & Johnson — all grew revenue by around 11% year over year in their last quarters, including sales of Covid-related items.
Although Abbott’s dividend yield of around 1.5% is slightly higher than the S&P 500, it is below the average healthcare stock dividend of 2.28%. So what will help Abbott be a strong game for the next 10 years? First, the company is strengthening its organic pipeline. During the third quarter, it announced FDA approval for its Amplatzer Amulet – a device used in the heart to clear blood clots before they can form.
The company has also filed for premarket approval seeking FDA review for its CardioMEMS system, developed for remote monitoring of the heart. FDA approval of these devices could have a significant positive impact on patients and company revenue: 5 million people in the United States are currently living with heart failure, with 550,000 new cases diagnosed each year .
Second, the company is investing its $9.7 billion in cash in acquisitions that further strengthen its pipeline. The acquisition of Walk Vascular (for an undisclosed amount) in September expands its endovascular product solutions with Walk’s system designed to break up and remove blood clots.
Looking ahead, the medical device market is expected to grow at a compound annual growth rate of 5.7% through 2027, accompanied by a CAGR of 6.1% in the nutritional healthcare market through 2027. 2028, the increased presence of illnesses and diseases, an aging population, and technological advancements offering alternative treatments and procedures will all help fuel this market growth. Combined with Abbott’s expanding pipeline and consistent dividends, this expansion opportunity should provide reason enough to make this new dividend king an investment you can buy and hold for the next decade.
Optimizing UnitedHealth Services for a Larger Member Base
Like Abbott, UnitedHealth is expected to benefit over the long term from a projected compound annual growth rate of 9.7% for the health insurance market through 2028. This should enable continued revenue growth and provide liquidity that l can use to expand its portfolio of products and services to meet the needs of a growing customer base and an aging population as we enter the next decade.
UnitedHealth partners with more than 1.3 million physicians and 6,500 hospitals and healthcare facilities to provide health insurance and medical products to more than 100 million customers through two core business units, Unitedhealthcare and Optum. Like Abbott, UnitedHealth has growing revenues, stock price gains of 200% over the past five years and a reasonable dividend of 1.24%. That’s below the returns of its peers and the S&P 500, but still equates to $5.80 per share per year for investors, helping to ease any anxiety a volatile market might bring.
UnitedHealth’s fourth-quarter earnings beat consensus estimates by 4.2%, as revenue rose 12.6% year-over-year, driven by double-digit growth in both business units. Consolidated operating margin also increased to 7.5% from 5.4% year-on-year, driven by revenue growth, compared to an average margin of 5.1% for the sector health services in September 2021.
Going into 2022, the company expects 500,000 new patients this year through Optum, an area where revenue per consumer grew 30% in 2021. UnitedHealth expects an additional 800,000 new members through Unitedhealthcare. Optum’s success helps steer the company into the future as the company places greater emphasis on providing expanded patient care through specialty clinics.
Meanwhile, the insurance side of the business benefits from programs that charge patients based on the success of their treatment, rather than services rendered. By the end of 2022, the company expects to remain on track for double-digit revenue growth, topping $317 billion in total revenue for the year.
The challenges of the COVID-19 pandemic have forced healthcare companies to adapt to a changing environment. So far, UnitedHealth has taken the right steps to continue growing, giving investors with a long-term investment strategy reason to stay on board. As omicron’s push eventually wears off, it will be exciting to see what UnitedHealth does next.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.