Tickers in this Article: NVS, AZN, JNJ, ABT, LNCR, BAX, MDT
Healthcare has not always been the most fruitful hunting ground for dividend-growth investors. While there are numerous high-quality companies that generate substantial cash flow, many healthcare companies prefer to hang onto their cash for R&D or M&A purposes, or "return" it to shareholders in the form of share buybacks. That said, there are some worthwhile opportunities that dividend-growth investors should seriously consider.


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Drugs - The Old Standby
Within healthcare, pharmaceutical companies have always been dependable dividend-payers and that is still true today. Novartis (NYSE:NVS), AstraZeneca (NYSE:AZN), GlaxoSmithKline (NYSE:GSK) and Pfizer (NYSE:PFE) are just four prominent examples of above-average dividend yields available in this sector. Novartis is arguably the most attractive today, but AstraZeneca could appeal to those who really look to couple capital growth and dividends, as the market may have overestimated the company's vulnerability to patent cliffs.

Slimmer Pickings in Devices
Medical device companies have never been especially generous with dividends and that still has not changed. That said, as companies like Medtronic (NYSE:MDT), Stryker (NYSE: SYK) and Becton Dickinson (NYSE:BDX) mature and transition, dividend payouts could increase. The yields offered by Medtronic and Becton Dickinson may or may not meet the minimum standards for most income investors, but rising payouts at least merit checking in on these companies from time to time. (For more, see A Checklist For Successful Medical Technology Investment.)

Large Healthcare with Attractive Dividends
Companies like
Johnson & Johnson (NYSE:JNJ), Abbott Labs (NYSE:ABT), and Baxter (NYSE:BAX) do not fit neatly into any of the subcategories of healthcare, but they are clearly important companies with large healthcare franchises. They also happen to pay fairly attractive dividends.

Johnson & Johnson is clearly struggling right now, and arguably needs to clean house in the executive suite. A spate of quality control problems and product defects have brought dishonor on the brand, and management has shown a disturbing inability to leverage the billions it has spent in M&A into sustained growth. Nevertheless, JNJ is JNJ and a long history of dividend payments should keep a floor in this name.

Abbott actually offers a better yield than JNJ today, and a more attractive business for only a small premium in valuation. Dividend-growth investors need to realize that a lot of Abbott's success depends upon Humira (and competition is on the way), but the company has an amazing record of dividend growth over the decades. (For more, see Great Dividend Yield Payouts.)

Odds and Ends
As "odds and ends" certainly suggests, these are dividend-paying healthcare stocks from some of the more distant corners of the sector.

Techne (Nasdaq:TECH) offers a relatively low yield (and high multiple) for a dividend-growth stock, but the company's life sciences business is very high-quality and the dividend payout ratio should increase in the future.

Lincare (Nasdaq:LNCR) is reliant upon government policy to a disturbing degree insofar as the government decides what sort of reimbursement it will offer for the company's respiratory therapy services. There are not many other dividend-paying healthcare service providers, though, so there is some scarcity value in that nearly 3% dividend yield.

CML Healthcare (OTCBB:CMHIF) will not be easy for many American investors to buy, but this leading provider of medical imaging services is quite liquid in Canada. Once a royalty trust company, CML restructured to a regular corporate format, but continues to pay a very sizable dividend. The company clearly suffered in 2010 from lower patient visit counts and reimbursement cuts will make 2011 challenging, but this is a company that has been through this before and is worth a serious look for those who can access the Canadian market and exercise patience for a year or two as the company looks for the "new normal" in its business model.

The Bottom Line
Healthcare stocks have by and large recovered nicely from the doldrums of 2009 and 2010, but the growth outlook is actually improving. As the economy progresses back to normal, people will return to their doctors, utilization rates will pick up, and cash flow will improve. As many large healthcare leaders struggle to find new growth avenues, though, many of these companies will likely look to return cash to shareholders and healthcare could become increasingly attractive to dividend-growth investors. (For more, see Great Dividend Payers In Medical Technology.)

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