2 Healthcare Dividend Stocks to Buy and Hold

Key Points

• The healthcare sector can be a good place to find excellent, dividend-paying companies.

• Amgen and Merck possess many of the qualities that income-focused investors seek.

• Although both face some obstacles, they should be able to overcome them.

• 10 stocks we like better than Amgen ›

Between labor-market data and potential interest-rate cuts, Wall Street has a lot on its plate right now. In an environment like this one, it can be helpful to invest in solid, dividend-paying stocks -- and due to its non-cyclical nature, the healthcare sector is a good place to find some.

Many medical products, including pharmaceutical drugs, perform relatively well even in tough economic times. That allows drugmakers to deliver consistent revenue, earnings, and cash flow to support their dividend programs over long periods.

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With that as a backdrop, let's consider two excellent healthcare dividend stocks worth holding on to for a while: Amgen (NASDAQ: AMGN) and Merck (NYSE: MRK).

Image source: Getty Images.

1. Amgen

Amgen, a leading biotech, has a lot to offer investors. The company boasts a deep lineup of products featuring over two dozen brands. Many of these are blockbuster drugs that each generate over $1 billion in annual sales.

Its portfolio is also well-diversified across several therapeutic areas. Amgen markets medicines such as Repatha, which helps reduce the risk of heart attacks in certain patients; Evenity and Prolia, for bone health in postmenopausal women or people with cancer; and Otezla, for plaque psoriasis.

Thanks to its large portfolio, the company generates consistent revenue and earnings. In the second quarter, Amgen's revenue grew 9% year over year to $9.2 billion, while its non-GAAP (adjusted) earnings per share came in at $6.02, 21% higher than the year-ago period.

Amgen will soon encounter some patent cliffs. In fact, it recently started dealing with biosimilar competition for Prolia. However, the company should be able to handle this challenge thanks to several growth drivers and newer products it will eventually launch.

Existing growth drivers include Tezspire for asthma, first approved in the U.S. in 2021; its sales in the second quarter grew 46% year over year to $342 million. Tepezza, a therapy for thyroid eye disease first launched in 2020, also looks promising. And in Amgen's pipeline, products such as MariTide for weight loss, and the investigational stomach cancer medicine bemarituzumab (which recently completed a phase 3 study), also appear to be future top performers.

Lastly, Amgen has a strong dividend profile. Its forward yield is now a juicy 3.4% (compared to the S&P 500's average of 1.3%), and the company has increased its payouts every year since initiating a dividend in 2011. Healthcare investors looking for income stocks should strongly consider Amgen.

2. Merck

Merck may face increased competition, including biosimilars, for its best-selling cancer medicine, Keytruda, whose patent exclusivity is set to expire in 2028.

In the meantime, it's dealing with some headwinds for its best-selling vaccine franchise, Gardasil and Gardasil 9, which protect people against HPV. Merck has had to pause shipments of both vaccines in China due to lower demand in the country, resulting in declining sales.

The result: Merck's revenue is moving in the wrong direction. In the second quarter, its sales declined by 2% year over year to $15.8 billion.

Can the company overcome these challenges? I think it can, though that will take some time. Merck is developing a subcutaneous version of Keytruda, which recently demonstrated non-inferiority compared to the original intravenous infusion, while significantly reducing preparation and monitoring time for physicians. This new version of the medicine will help extend its patent life well into the next decade.

Elsewhere, the drugmaker has also earned approval for several new products. These include Winrevair, which was approved last year for the treatment of pulmonary arterial hypertension.

Merck's exciting pipeline candidates include MK-0616, being developed to help lower LDL cholesterol; the medicine could hit peak sales of about $5 billion, according to some projections. Despite Merck's vaccine issues in China, the company expects Gardasil and Gardasil 9 to drive sales growth in the second half of the year and to sustain that momentum in 2026 and beyond.

Overall, Merck's prospects remain strong, and the dividend looks good, too. The forward yield now tops 3.9%, and the company has increased its payouts by 88.8% over the past decade. While Merck is down significantly this year, that could be an excellent entry point for dividend investors willing to hold on to the stock for a while.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amgen and Merck. The Motley Fool has a disclosure policy.