The Newest Dividend Growth Challengers: Healthcare

As a dividend growth investor, I’m always seeking new investment opportunities that pay growing dividends each year in an attempt to build an ever rising stream of income that I will one day live off of.  One of the great free tools available to investors is David Fish’s CCC list.  It keeps track of annual dividend raises across the stock market. The “CCC” stands for “Champions” (stocks that have 25 or more years of dividend growth), “Contenders” (10-24 years of growth), and “Challengers” (5-9 years of growth.)

  Every time this list is updated, I scan the Challengers for the newest additions.  You’ll mostly see businesses that have frozen or cut their dividends in the past such as Wells Fargo (WFC), General Electric (GE), or Eaton Corporation (ETN), but occasionally you can discover new to you businesses that have never been on the list before and these can be real hidden gems.  Could you imagine buying and holding a stock like Johnson & Johnson (JNJ) or Procter & Gamble (PG) within the first half decade of their 50+ years of dividend increases?  A simple $1,000 investment back then would be worth many millions today.  The starting yield is usually small with these newer dividend growth stocks, but as you hold them for many years and collect all of the dividend increases, your yield on that initial purchase rises substantially. When combined with their typically fast earnings per share growth, you can easily outperform even the steadiest of blue chip companies.  There is a lot of elevated risk involved in these newer dividend payers because they are often much smaller companies and don’t have the long and secure dividend payout history DGI investors seek.  Not many businesses can accomplish what PG and JNJ have over their business lives, and often these Challengers never even make it to the Contenders tab on the CCC list spreadsheet.

This series briefly highlights a few such companies; these are the newest of the new.  Its their first year on the CCC list with the very minimum of 5 annual dividend raises.  I’ll be showing various valuations, but I find all of the pictured fast graphs attractive enough for further research.  I would only suggest these research candidates for portfolios with already established safe core stock holdings.

For those unfamiliar with fast graphs, it’s a tool that displays many kinds of data in one simple graph.  Here are a few things they do very well according to www.fastgraphs.com:

  1. They provide a historical review and instantaneous perspective of how well the business behind the stock has historically performed (the orange earnings justified valuation line).
  2.  They provide an instantaneous perspective of how the market has historically capitalized or priced the company’s operating results or business performance (the blue normal PE ratio line).
  3.  They provide a precise consensus estimate of leading analysts’ near term earnings expectations for a company’s current fiscal year and next fiscal year followed by a five year earnings growth consensus estimate (estimated earnings and return calculator graph).

The current stock price is the black line, and typically when that black line is in the darker green area below the orange line, the stock is undervalued compared to its earnings.  When the black line is below the dark blue line, the price is undervalued compared its normal PE ratio.  The white line toward the bottom are the dividends with their specific numbers below that.  You’ll also see data such as current dividend yield, market cap, debt, and EPS numbers with percentage changes.

In this first article, I’ve found a few attractive healthcare names.

UnitedHealth Group (UNH)

UnitedHealth Group was founded in 1974 as “Charter Med Incorporated” by a group of physicians and other healthcare professionals who wanted to expand health coverage options for consumers.  Today it is one the most diversified healthcare companies in the United States.  Its core capabilities include clinical care resources, and information & technology innovation.  Their businesses touch nearly every aspect of the healthcare industry from diabetes prevention and control to being one of the nation’s largest employers of nurses and so much more.

  • Dividend growth rate 3 year average: 32.15%
  • Dividend Payout ratio: 26%
  • 10 year annual revenue growth rate: 15.80%
  • Total Return Last 5 years: 270.39%

2015_MAR_FG_UNH

Dividend Yield History from www.profitspi.com:

2015_MAR_DY_UNHAnthem, Inc. (ANTM)

This company was formed when WellPoint Health Networks Inc. & Anthem, Inc. merged in 2004 to become the country’s leading health benefits and plans company.  Until last year, the stock was known as Wellpoint Inc, but they recently changed their name to Anthem. Headquartered in Indianapolis, Indiana, Anthem aims to create the best health care value in its industry by excelling at day-to-day execution, and capitalizing on new opportunities to drive growth, such as their recent acquisition of Simply Healthcare Holdings, Inc.

  • Dividend growth rate 3 year average : 23.18%
  • Dividend Payout ratio : 22%
  • 10 year annual revenue growth rate : 14.60%
  • Total Return Last 5 years : 154.15%

2015_MAR_FG_ANTM

Dividend Yield History from www.profitspi.com:

2015_MAR_DY_ANTM

U.S. Physical Therapy, Inc. (USPH)

“U.S. Physical therapy is the largest publicly-traded, pure-play operator of outpatient physical and occupational therapy clinics, with over 480 clinics in 42 states.  The clinics provide pre- and post-operative care for a variety of orthopedic-related disorders and sports-related injuries, rehabilitation of injured workers and preventative care. USPh also manages several physical therapy facilities for third parties, including physician groups. Each of USPh’s clinics are directed by a licensed physical therapist that drive patient volume via local physicians, former patients and other referral sources. Marketing representatives are used to further augment sales. Historically, USPh has grown its business through de novo development; approximately two-thirds of USPh clinics were originally start-ups. Strategic acquisitions, which accelerate the Company’s growth, are structured like the de novo partnerships, with significant ownership retained by founders.”

  • Dividend growth rate 3 year average : 36.44%
  • Dividend Payout ratio :31%
  • 10 year annual revenue growth rate : 10.30%
  • Total Return Last 5 years : 180.54%

2015_MAR_FG_USPH

Dividend Yield History from www.profitspi.com:

2015_MAR_DY_USPHSt Jude Medical Inc. (STJ)

Headquartered in St. Paul, Minnesota, St. Jude was founded in 1976 as a pioneering manufacturer of bi-leaflet implantable mechanical heart valves.  Today they are a global medical technology leader that operates in six key treatment areas: Heart Failure, Arrhythmias, Vascular Disease, Structural Heart, Chronic Pain, & Neurological Diseases.  They invest more than 12 percent of revenues in medical device innovation every year, and their product portfolio reflects a cumulative investment in medical device innovation totaling more than $10 billion.

  • Dividend growth rate 3 year average : 8.55%
  • Dividend Payout ratio : 32%
  • 10 year annual revenue growth rate :  12.10%
  • Total Return Last 5 years : 73.27%

2015_MAR_FG_STJ

Dividend Yield History from www.profitspi.com:

2015_MAR_DY_STJ

Are you familiar with these newest dividend growth businesses?  Would you invest in any company with a brief dividend history?

Photo: Jason Ortego @ http://unsplash.com

My Dividend Growth

http://www.mydividendgrowth.com

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23 thoughts on “The Newest Dividend Growth Challengers: Healthcare
  1. roadmap2retire

    Love this post, Ryan. I scan the list regularly for new challengers as well (also I look for companies that are on the verge of jumping from challengers to contenders or contenders to champions).
    Thanks for posting the profiles and their respective FASTGraphs charts.

    Any plans on future posts on other sectors? Would love to read posts covering other sectors too 🙂

    R2R

     
    Reply
    1. My Dividend Growth

      Glad you enjoyed it, R2R. That means a lot coming from you! The CCC list is such an amazing resource, I fear most of us take it for granted and hope that it will be maintained well into the future. I do have plans to cover other sectors and have already pulled out the names I want to cover, though some sectors will probably be combined into one post because the attractive candidates are few and far between. Thanks for all of your support, it means the world to me 🙂

       
      Reply
  2. JC

    UNH looks interesting because I’d like to add another insurer to my portfolio and the healthcare sector could be very valuable. I’m curious though what your thoughts are on medical insurers with regards to the aging boomers. I’d expect them to have to start forking out more dough as the boomers age and need to utilize more healthcare services. But I’m bullish on the healthcare sector in general.

     
    Reply
    1. My Dividend Growth

      I think you’re right to want to look closer into this name a little further, JC. As you said, it combines two of our favorite healthy sectors in healthcare and finance. It’s the same old story that as the population increases so does the need for these sort of services, and that applies to aging baby boomers and even our generation. The major risk in my opinion would be any government policy or regulation changes like we’ve sometimes seen in the past. This is consistent with all insurers and benefit companies though and hopefully won’t come without warning and we’d be able to get out of any riskier plays before experiencing any major loses. The thing I always like to remember in those situations is that if the general investment community and public know about these risks, management knows way more than we do and are hopefully on top of their game and planning ahead for any major shifts. UNH seems to have very solid management and seems primed to grow much further from here. I’d love to read a more in depth analysis in your style of writing on this one!!! Best wishes my friend!

       
      Reply
  3. Retire Before Dad

    MDG,
    Informative post. Lots of food for thought. Feel like I’ve definitely missed the boat on these. I particularly like the physical therapy play. Anyone who’s tried to get an appointment with these people know how booked they are.

     
    Reply
    1. My Dividend Growth

      Completely agree, I also identify the physical therapy play as the most attractive of the bunch. Total return isn’t the highest of the four, but the dividend growth rate is! That’s what it’s really about with this strategy. Thanks for the comment, RBD and hope all is well with you!

       
      Reply
  4. Dividend Gremlin

    Great post Ryan. I like the CCC list and it is nice to see the approach you have taken here. I have to echo the above comments, will there be more?

    I’ve seen UNH in the DC area and I have heard of ANTM, and I feel like both have been getting radio ads and growth around here for a while now. USPH seems like a really interesting play too, out patient services are going to nothing but go up for a while. STJ is interesting because the medical device field has been doing great for some time. I like all 4, my #1 would probably be USPH because of all the sports I play.

    Also don’t confuse STJ with St. Jude Hospital!

    – Gremlin

     
    Reply
    1. My Dividend Growth

      More to come for sure, Gremlin. So glad you’re finding value in this. I’ve already picked the tickers so I’ll probably do one a week here if I can find the time. There are a few in other sectors that I’m actually considering for my next investment, so I’ll be happy to share those next.

      I always seem to notice businesses only after I read about them, so it’s good that you’re paying attention! That’s one thing I’d like to get better at: seeing something useful in daily life and digging in to see if it’s publicly traded. I see so many different aspects of the market here in LA and have a lot to sift through in that regard.

      You, RDB and myself all seem attracted first and foremost to USPH and for good reason! I’d be curious to hear your thoughts if you dig and do some research on it. I need to find some time to do more myself before signing off on it completely. Wishing you a great weekend coming up here and thanks as always for the comment 🙂

       
      Reply
    1. My Dividend Growth

      Hi Claire! I’m so glad to provide a few newer names for you here. Be sure to check back in the next few weeks because I’ve got a few more ideas coming in this series.

      I’m a big fan of all the wonderful blogs on my resources page, there’s so much talent and wisdom in the dividend growth investment community. It means a lot that you’d read my personal progress here! Thank you!

       
      Reply
    1. My Dividend Growth

      It’s absolutely my pleasure, Tawcan. I think there’s something to like about all of these names mentioned, but UNH’s 5 year total return of 270.39% completely trumps the rest hands down. I’d be curious to hear your thoughts if you look into it. Thanks for the comment!

       
      Reply
  5. Dividend Growth Journey

    Great list of stocks. Stocks like these will be a great investment for long term if they end up panning out like PG or KO etc. Health care is definitely a sector that will continue to grow as the earth’s population increases and more people need healthcare. I hold JNJ, AET and BAX though not that much. Would definitely like to add one of these stocks soon. Looking forward to seeing your purchase in this sector if any.

     
    Reply
    1. My Dividend Growth

      Thank you much, DGJ. I’m just the messenger though and David Fish is the one to thank. I can’t believe the amount of work that must go into making the CCC List. The possibilities are certainly intriguing with these sort of investments, and if you get one right it’d probably be the equivalent of winning over 50 jackpot lottery tickets with the return it’d produce after half a century. I’m pretty happy with my exposure to healthcare at the moment, but that’s bound to change as I pump up other sectors. It should give me enough time to do due diligence with the research these names require. To be honest I’ve only barely scratched the surface and wouldn’t be comfortable with any quite yet. I’m excited to see where you aim next my friend and have a great weekend coming up here 🙂

       
      Reply
    1. My Dividend Growth

      Those are some solid names Khen, thanks for sharing. In this series I’m only highlighting businesses in their first year on the CCC list which you can read about above.

      Best Wishes,
      Ryan

       
      Reply
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  7. DivHut

    As you mentioned it’s rarely about the starting yield when being a dividend growth investor. It’s all about the dividend growth and holding PG or JNJ for multiple decades would no doubt give you an incredible yield on cost that could not be matched by any current investment vehicle. Like you, I really would love to buy into more health stocks. I already own JNJ, BDX, BCR, ABBV, ABT and HYH but I am reluctant to add to those names at current valuations. Everything is just so darn expensive these days. Sure we have energy and financial stocks but how much of that can we or should we buy? Thanks for the breakdown of these names. UNH looks interesting to me.

     
    Reply
    1. My Dividend Growth

      I tend to prefer these lower yields with high growth because I have such a long time horizon. Funny you mention financials because I can’t seem to help myself, just grabbed more of asset manager BEN which also fulfills that low yield high growth attribute. JC brought up a good point that those 2.5-4% yield ranges are getting way over valued, but you can still find decent values on both ends of those.

      Thanks for the comment!

       
      Reply

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