The Healthcare Sector is a group of companies offering goods and services related to the medical industry. The sector covers a variety of business types, with offerings that include: Medical Equipment and Devices, Hospital and Clinic Facilities, Insurance and Health Management, Pharmaceutical Production and Distribution, Dental Care, Biotech R&D, Consumer Products, and Health Services.
The wide variety of sub-sectors makes it an interesting sector to review, as they each bring their own unique set of risks and growth potential to the game.
For example, the pure biotech companies need to put out large upfront costs for R&D to identify and develop new drugs for sale. This involves discovering the compound, patenting it, testing it, putting it through trials, and then getting it approved by the U.S. Food & Drug Administration (FDA). This process can take several years to carry out.
Once all that work is done, the drug has to be marketed and sold while the company fends off therapies from other companies. On top of that, the drug that is finally approved has a 20-year shelf life from the time the patent was filed; meaning a company may only have 15 or so years of actual sales before generic versions of the drug can be sold.
These factors make the biotech companies some of the riskier names to own, but also offers the potential for lucrative rewards when a blockbuster drug is invented.
The Healthcare Sector can also be affected by changes in regulations, like the ongoing discussion about the potential repeal of The Affordable Care Act, aka “Obamacare”.
Should that law be repealed or changed significantly by Congress, there could be impacts to insurers, healthcare facilities, and other medical providers.
All that said, healthcare stocks offer some of the best returns in the market. The graphic below from SectorSPDR shows that the sector has outperformed the S&P 500 five of the last six years, with 2016 being the first year since 2010 that it failed to do so.
Healthcare is now attractive on a valuation basis since it was the lone sector to produce a negative return in 2016. This brings me back to the point of this page, which is the sharing of my watch list of what I consider the best dividend growth companies available in the sector.
The 23 stocks on this list all have quality credit ratings, have shown a commitment to paying an increasing dividend, and have produced a track record of consistent earnings growth to support that dividend.
The list covers nearly all aspects of the Healthcare Sector, with companies operating in drug R&D, distribution, healthcare services, medical devices, medical equipment, and consumer products.
Here is the watch list, with information updated as of April 7, 2017.
Here also is a PDF link of that watch list.
For some additional information on the companies, including five-year yield on cost and total return projections, please check out the links to my articles from Seeking Alpha below.
April 10, 2017
October 5, 2015
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