3 Dividend-Paying Healthcare Stocks That Age Well

In the U.S., the immense size and longevity of the baby boomer generation is gradually creating a seismic shift in the composition of the demographics of the country. There are many factors to consider as to why this is occurring, and below, we’ll take a look at some of those factors. However, the inescapable truth is that the U.S. is aging, and is projected to age much more over the coming decades. While this has many implications from an economic perspective, one obvious implication is on the healthcare system.

Here, we’ll take a look at the aging of the U.S., its factors, and three dividend-paying healthcare stocks we believe are well-positioned to benefit from this trend.

Aging in the U.S. as a Long-Term Trend

The aging of the U.S. population is certainly nothing new. Ever since the baby boomers became of adult age, the average age in the U.S. has gradually risen. That is more so the case today than it has been before, however, as the U.S. is set to have more older adults than kids for the first time in history, according to data from the Census Bureau.

The U.S. already has more middle-aged adults than children, but within the next 15 years, the Census Bureau expects people 65 or older to outnumber those that are under 18.

This has numerous implications, some of which can be observed by Japan’s aging population. That country is expected, for instance, to see a sizable population decline over the next three decades, as there simply aren’t enough people of child-bearing age to make up for the declines. The U.S. could be in a similar situation in a few decades, as could some countries in Europe.

Americans are having fewer children today than was the case in the past, meaning the replacement rate has declined. In addition, life expectancies continue to rise, so there are fewer young people, and older people are living longer. With baby boomers being the largest generation, and with people in that generation at or near retirement age today, the math is simple and results in rising average ages.

The bottom line is that by 2060, nearly one in four Americans will be at least 65 years old, meaning that working-age adults will number just 2.5 for every retiree. Today, that number is 3.5.

Healthcare companies with a wide array of services and products will be needed to meet this flood of aging citizens, so let’s take a look at three pharmaceutical companies we think are positioned to benefit for the long-term.

3 Stocks to Profit From an Aging Population

Our first stock is Merck & Co. (MRK) , a global healthcare company that also operates an animal health business. We’ll focus on the pharmaceutical business, however, as that relates directly to the aging U.S. population.

Merck offers a wide variety of oncology, acute care, immunology, neuroscience, virology, cardiovascular products, and more. The company was founded in 1891, generates about $58 billion in annual revenue, and trades with a market cap of $235 billion.

We like Merck because it has strong leverage to the inevitable health concerns that face an aging population, from oncology to cardiovascular to immunology. Merck is constantly acquiring competitors and has its own robust research and development pipeline from which it can benefit from the health issues that face a growing elderly population.

The stock also pays a 3.0% dividend yield, which is about double that of the S&P 500. In addition, the dividend is under 40% of earnings today, so it’s quite safe, particularly given the company’s inherent defensive nature and growing earnings.

Next is Bristol-Myers Squibb (BMY) , a global biopharmaceutical company that discovers, develops, licenses, and manufactures a huge array of products. The company offers, among others, hematology, oncology, cardiovascular, immunology, and fibrotic treatments.

The company was founded in 1887, produces more than $46 billion in annual revenue, and has a market capitalization of $162 billion.

Bristol-Myers has a particular focus in oncology products, and given that cancer cases are more prevalent in an older population, we think this positions the company well with its deep and wide assortment of various oncology treatments.

We note that Bristol-Myers faces patent expiration over time on its current treatments, but the company’s history of developing successful drugs for a variety of ailments has us believing this will continue.

Bristol-Myers yields 2.9%, so it is a strong income stock as well. In addition, the payout ratio is just 25% of earnings, so the dividend is extremely safe, and we see it growing for many years to come.

Our third stock is Pfizer (PFE) , a global biopharmaceutical company that develops, manufactures, and distributes a wide variety of treatments, including its popular Covid-19 vaccine. In addition to that, which should be a temporary tailwind, Pfizer has a concentration in cardiovascular and metabolic treatments, as well as women’s health.

Pfizer was founded in 1849, generates over $100 billion in annual revenue, and trades with a market capitalization of $302 billion. The concentration in cardiovascular in particular suits an aging population as cardiovascular disease is common as people get older. We think this focus from Pfizer is timely given the demographics of the U.S.

Pfizer’s yield is quite similar to the other two on this list at 3.1%, so again, it’s a strong dividend stock. Combined with its favorable growth outlook — we think it can average 5% earnings-per-share growth in the coming years — and its payout ratio of just 25%, Pfizer’s dividend should grow for many years to come. The combination of defensive, predictable earnings, a low payout ratio, and a high yield make for a terrific dividend stock.

Final Thoughts

While there are numerous implications for the U.S. due to its aging population, one mega-trend is that of needing ever higher amounts of treatments for common ailments among the elderly.

We see Bristol-Myers, Merck, and Pfizer as well-positioned for an aging population, but all three for different reasons. The net result, however, is the same in that we believe all three offer strong, safe dividends that can grow for many years to come.

(Bob Ciura is a regular contributor to Real Money Pro. Click here to learn about this dynamic market information service for active traders and to receive columns from daily columns and trade ideas from Bret Jensen, Paul Price, Doug Kass and others.)