As dividend growth investors, we like important products because they create constant demand. The healthcare and utilities sectors fit this definition well. While their dependable dividends make them attractive to retirees, one shouldn’t forget to look at the debt levels of these capital-intensive companies.
Here’s what you need to know about healthcare and utilities!
You will learn
- How “tech” companies in communications services impacted the industry.
- Why are drug makers no longer thriving during the pandemic?
- Why both sectors are best for retirement portfolios.
- Is the renewable energy hype a good indicator?
- Strengths and weaknesses of both sectors and how to get the best out of them.
- More on Mike’s favorite picks: JNJ, ABBV, LMAT, NEE, FTS, AQN.
Healthcare sub-sectors (industries)
Because they are difficult to remember on the podcast, sub-sectors of health care are listed here. I also covered the sector in this post.
The advantage for dividend investors in this sector is the wide range of large and well-established companies. The best performing companies in this sector are often long-term companies with a strong distribution network or a large drug portfolio and pipelines full of new products. Large drugs usually offer a safe haven for your money in the long run. They know how to manage their R&D budgets and drug pipelines. The health sector often sees inventory spikes up and down as a result of the results of its discoveries. Patents and regulations are part of the daily routine.
Medical devices, instruments, or suppliers offer products with repeat purchases. They enjoy broad sales networks, loyal customers and constant repeat orders. They can also be great dividend producers.
Sub-sectors Utilities (industries)
It has been known in the past that utility companies are quite generous with their dividends. They tend to distribute around 50% of their available cash flow to their shareholders. This is the perfect type of business for dividend investors. Utilities 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 would not make sense for three different electricity companies to spend billions on generators and power lines to serve the same geographic area. As a result, utility markets are usually well protected and companies have nothing to fear but themselves (e.g., poor management). Now let’s review the Utilities subsectors.
During the podcast episode, Mike and Vero mentioned many stock picks that Mike recently discussed in depth on his YouTube channel. You can see them right below, all about utilities!