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Top 3 Healthcare Dividend Stocks - Dividends for Passive Income - YouTube
Channel: Learn to Invest - Investors Grow
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Hi, I'm Jimmy in this video, I'm going to
walk through my top three dividend stocks
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from the health care sector.
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This video is part of our passive income from
dividend series where we're going through
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each of the 11 GICS sectors and try to identify
a handful of dividend stocks that could do
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well and ultimately get our get.
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Each of us closer to our goal of financial
freedom.
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Okay.
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Simple enough.
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Now, so far in this series, I've been trying
to identify both European and U.S. stocks
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that could do well going forward, but actually
struggled in this particular sector to find
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great European dividend stocks in the health
care sector.
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Because of that, I've focused mostly on the
US stocks, although stick around to the end
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because I've got a couple ones that also trade
in Europe.
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So to make this list, I created a few fundamental
sort of guidelines that each company has to
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meet in order to make this list.
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They have to have a dividend yield above 2
percent.
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They have to have a strong dividend coverage
ratio and ideally they should be able to grow
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their dividend.
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Now, if you happen to know any great European
dividend stocks that meet these criteria,
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please put them in the comments below.
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I'd be curious to see which ones everybody
comes up with.
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Okay, let's jump into our first U.S. dividend
stock.
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First up, we have Johnson and Johnson, ticker
symbol JNJ.
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Now, Johnson and Johnson has a dividend yield
of a bit more than two and a half percent.
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And Johnson and Johnson manufactures and sells
a ton of products.
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They have a large pharmaceutical division.
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They sell skin and hair care products.
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They have over-the-counter medicines.
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They sell medical devices.
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And the list goes on and on.
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When we look at their dividend per share,
well, this is exactly what we would expect,
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a very consistent, steadily growing dividend
per share from a pharmaceutical type company.
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These are the older, more established companies
out there that are likely to going to be able
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to continue to pay their dividends despite
what the economy does.
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These tend to be very defensive dividend stocks
and we could see that.
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Analysts are expecting that to continue.
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Analysts estimates are the green bars.
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So it looks like they expect that to continue
on from here.
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When we add earnings per share to this chart,
well, we can see that earnings more than cover
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the amount of dividends that they've been
currently paying out.
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That's likely to be a good thing for the sustainability
of those dividends.
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Now, I mentioned that it's important when
I was screening for these companies that they
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each of these companies have a strong dividend
coverage ratio.
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If you're curious about that, just as an example,
if we take the 2018 numbers while we take
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their adjusted earnings per share of about
six thousand eighty cents per share, we divide
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that by their dividend of three dollars and
50 cents and we get a dividend coverage ratio
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of 1.9X.
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That's pretty good.
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Okay.
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So overall, JNJ looks like a solid dividend
stock.
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Next up, we have Cardinal Health Ticker Symbol
CAH.
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Cardinal Health is one of the leading pharmaceutical
and medical distributors in the world and
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they have a dividend yield of about three
and a half percent.
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When we look at their dividend per share,
well, once again, we can see that they've
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been quite consistent.
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But then when we add profits to this whole
thing, well, we can see that this story gets
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a bit more interesting here.
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We can see that their profits per share had
a big drop back in 2018, and that happened
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because they ran into some supply chain and
operational issues.
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Well, clearly, it looks like a lot of those
issues have been sorted out since 2019.
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Earnings per share got much better.
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And we end up with a pretty good dividend
coverage ratio of almost 2x in 2019.
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Now, that's actually the primary advantage.
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It's a reason why I have the different coverage
ratio rule in there because that gives us
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a little bit of wiggle room if a company runs
into problems.
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Typically, I like to have companies that have
somewhere between a 1.5X and 2X, which gives
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you the wiggle room we need.
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So this 1.95X is what I think they actually
have.
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That's much better in my opinion.
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Now for looking for more growth.
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What we'd want our dividend coverage ratio
to be much higher since in theory that would
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mean that they're paying out a smaller piece
of their dividends and they could use the
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rest of the company, the rest of the cash
to fuel the company growth.
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If we want more dividends or we want a lower
dividend coverage ratio implying that they're
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paying out a larger percentage of their their
profits as dividends for that would probably
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run companies like our Real Estate Investment
Trust or REITs or a master limited partnership,
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which is MLP for sure.
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Those tend those types of companies tend to
pay out a larger percentage of profits.
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Okay.
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Let's jump to our next company, Pfizer.
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Ticker symbol PFE Pfizer is a solid dividend
yield of about three point seven percent and
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they're one of the stronger pharmaceutical
companies out there.
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When we add their dividends per share chart,
well, there we can see that they've been quite
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stable.
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And what we really expect from a solid health
care or defensive dividend stock, when we
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add adjusted earnings per share to this, well,
we can see that dividends have been consistently
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covered on an annual basis.
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Their profits.
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I know some of their quarterly numbers didn't
quite meet the meet what they needed, but
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overall their annual numbers are getting there,
which I think is the most important thing
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for most dividend stocks.
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Now, the 2018 dividend coverage ratio is the
lowest of the three stocks we've looked at
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so far with about one point six acts.
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But if we believe analysts.
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Well, looks like they're expecting about 2x
in 2019.
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And I think that this is very reasonable considering
that three quarters of 2019 have already been
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completed.
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And all signs are that the fourth quarter
should get them at least relatively close
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to their 2 times dividend coverage ratio.
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Okay.
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Now get a few other dividend stocks that I
thought I really wanted to add to this list,
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but frankly, they didn't meet one or two of
the criteria.
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So what I'm going to end up doing is adding
them to the dividend watch list.
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So the first one is McKesson ticker symbol
MCK that trades in both the U.S. and in Germany
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under the same ticker.
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This is a chart of both profits and dividends
per share.
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And clearly, they're doing a fantastic job.
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Profits are doing a fantastic job of covering
their dividends.
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But this brings us to the issue right now.
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McKesson only has a dividend yield of about
1 percent.
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So it makes sense, I think, to add this to
the watchlist in hopes that they one day increase
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their dividend, which they can clearly do.
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Okay.
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Next up, I was considering Glaxo SmithKline
ticker symbol GSK in London and their ADR
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in the U.S. trades under the same ticker here.
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The issue is the consistency of their earnings
per share.
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Their dividend has been quite consistent.
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But I think that the dividend is frankly a
bit too high.
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So I think until they get the volatility of
their earnings under control, I think it's
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best to keep them on the sidelines for now.
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Now, I've actually gotten a few comments recently
on some of the videos asking do I think that
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if do I think that dividend stocks are better,
then let's call them non dividend paying stocks.
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And I think a lot of that depends on each
of our individual goal of investing.
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I think they can be much better in some situations.
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I actually did a video called The Dogs of
the Dow where I analyzed the popular dividend
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strategy called the dogs of the Dow.
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And that strategy has done impressively well.
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So if you're curious about building a better
dividend portfolio, that could be a good next
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video to watch.
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I've got a link here.
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I got a link in the description below.
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Thank you so much for stick with me all the
way into the video.
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Hopefully I'll see over in that video.
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Thanks.
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I'll see in the next one.
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