Investors looking for stocks they can hold for a while might want to consider dividend-paying companies. In addition to providing a steady stream of passive income, dividend stocks have generally outperformed their non-dividend peers over the long term.
That’s not surprising. Maintaining a growing dividend program through good times and bad requires a rock-solid company. Healthcare companies have an added advantage because they are in a defensive sector that performs relatively better when the economy slows down.
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Against that backdrop, let’s take a look at two healthcare dividend stocks for long-term investors: Merck (NYSE:MRK) And Medtronic (NYSE:MDT).
The forward-looking nature of the market explains why Merck shares are down 10% this year. Investors are already setting their sights on 2028, when the company’s biggest moneymaker by far, cancer drug Keytruda, will lose patent exclusivity in the US.
And even before that, Keytruda could face competition from an investigational therapy called ivonescimab, which is being developed to treat non-small cell lung cancer, among other diseases for which Keytruda has received indications. Is there a way for Merck to get out of this situation?
Yes, that’s true. First, the company has been working on a subcutaneous version of its crown jewel, which should have many of the same indications as the original and extend the life of the patent. The challenge for Ivonescimab may be real, but the drug won’t be approved in the US for a few years.
Furthermore, Merck is being proactive, as evidenced by its recent collaboration with privately held China-based LaNova Medicines to develop LM-299, a bispecific antibody in the same class of drugs as ivonescimab.
Something may come from Merck’s partnership with LaNova, or it may be a failure. The important point is that Merck, a long-time leader in oncology, will try to find ways around this new challenge.
The company’s success will also depend on products in other areas. That includes the recently approved Winrevair, a therapy for pulmonary arterial hypertension; Merck’s vaccine business; the animal health unit, and more.
The pipeline includes more than 60 programs in Phase 2 trials and more than 30 in Phase 3 clinical trials. It is no coincidence that the company has maintained its leadership in the pharmaceutical industry for decades. Expect it to do the same for much longer.
Meanwhile, financial results remain solid. Third quarter revenue grew a decent 4% year over year to $16.7 billion. The company’s adjusted earnings per share of $1.57 was 26% lower than the same period last year, but that was due to acquisition-related costs. For investors it is nothing to worry about.
Meanwhile, the dividend has grown 80% over the past decade and the company’s forward yield is above 3.18%, compared to S&P500‘s average of 1.32%. Despite poor stock market performance this year, Merck can overcome the challenges and continue to reward shareholders with payout increases.
Medtronic, a medical device specialist, has had some tough times in recent years. In addition to the pandemic severely disrupting operations, the company also faced slow revenue growth.
The company had plans to divest some of its low-growth units, but ultimately reversed that decision (although it did exit the unprofitable respiratory business). Still, the stock is worth buying for long-term dividend investors for three reasons: its solid position in the market, several exciting growth opportunities, and an incredible dividend track record.
Regarding the first point, Medtronic is one of the largest medical device companies in the world. Its portfolio includes dozens of products, it routinely receives new approvals and indications, and it operates in more than 150 countries. Medtronic has been successful in the healthcare industry for decades. That in itself is no small achievement.
Second, the company is looking at some exciting opportunities. One of these is the diabetes care segment, which has been the biggest growth driver for some time. In the second quarter of fiscal 2025 ending Oct. 25, revenues rose 5.3% year over year to $8.4 billion. That’s pretty good. However, the company’s diabetes care division increased sales even faster, reporting revenues of $686 million, or 12.4% higher than the same period last year.
One of the company’s key products in this segment is the innovative MiniMed 780G insulin pump. Given the large addressable market for diabetes – affecting more than half a billion adults worldwide – Medtronic has more work to do.
The company is also developing a robot-assisted surgery (RAS) system called Hugo, which is currently undergoing clinical trials in the US. The RAS market is seriously underpenetrated. As Medtronic noted last year, less than 5% of procedures that can currently be performed robotically are. It could be another important long-term opportunity for the company.
And the third reason to make Medtronic a long-term holding: The company has raised its dividend 47 years in a row and offers a forward yield of 3.20%. The company could become a Dividend King quite quickly and maintain its payouts for many years to come. That makes it a top income stock to buy and hold forever.
Consider the following before buying shares in Merck:
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Merck. The Motley Fool recommends Medtronic and recommends the following options: long January 2026 $75 calls on Medtronic and short January 2026 $85 calls on Medtronic. The Motley Fool has a disclosure policy.
2 Healthcare Dividend Stocks to Hold for the Long Term was originally published by The Motley Fool
