As dividend growth investors, we like essential products as they create a constant demand. The Healthcare and the Utilities sectors fit well in that definition. While their reliable dividends make them attractive for retirees, one should not forget to look at these capital-intensive companies’ debt levels.
Here’s what you need to know about Healthcare and Utilities!
- What the healthcare and utility sectors have in common.
- Why are drug manufacturers not thriving more during the pandemic.
- Why both sectors are best suited for retirement portfolios.
- Is the hype around renewable energy a good indicator.
- Strengths and weaknesses of both sectors and how to get the best from them.
- More about Mike’s favorite picks: JNJ, ABBV, LMAT, NEE, FTS, AQN.
Healthcare Sub-Sectors (Industries)
As they can be hard to memorize from the podcast, here are Healthcare sub-sectors. I’ve also covered the sector in this post.
The advantage for dividend investors in this sector is the wide choice of large and well-established companies. The best-performing companies in this sector are often the long-term established companies that have a strong distribution network or a large drug portfolio and pipelines full of new products. Big pharmaceuticals usually offer a safe haven for your money over the long run. They know how to manage their R&D budgets and drug pipelines. The healthcare sector often sees stock surges both upward and downward based upon the results of their discoveries. Patents and regulations are part of their daily routine.
Medical devices, instruments or supply companies will provide products with repetitive purchases. They enjoy wide distribution networks, loyal customers, and constant repeat orders. They can make great dividend growers too.
Utilities Sub-Sectors (Industries)
Historically, utilities are known to be quite generous with their dividends. They tend to distribute roughly 50% of their available cash flow to their shareholders. This is the perfect type of business for dividend investors. Utility companies require large infrastructures and most of their capital projects are now defined in billions of dollars. The fact that utilities require billions in infrastructure limits the number of competitors. In most cases, we can talk about natural monopolies. It wouldn’t make much sense for three different electricity companies to spend billions on power generators and power lines to serve the same geographic area. Therefore, utility markets are typically well protected, and companies have nothing to fear, but themselves (e.g. poor management). Now, let’s review the Utilities Sub-Sectors.
During the podcast episode, Mike and Vero mentioned many stock picks that Mike recently discussed in more detail on his YouTube Channel. You can watch them right below, all about utilities!