The U.S. inflation eased in December, supporting a moderation in the Fed’s rate hikes for the upcoming months. Buoyed by the December jobs report and signs of a slowdown in inflation, investors are eyeing a 25-basis-point hike at the Fed’s next policy meeting.

Nevertheless, the uncertainty prevails as the Fed, in its last meeting, vowed to keep rates higher throughout this year. While inflation has moderated over the past three months, Richmond Federal Reserve president Tom Barkin said, “Inflation is going to be more persistent than a simple drop down to 2%.” This implies that rates could stay at a restrictive level longer than anticipated.

Moreover, Bank of America CEO Brian Moynihan sees a ‘mild recession’ this year and is preparing for worse, where unemployment climbs rapidly. If the recession turns out to be severe, the bank anticipates that the jobless rate will climb to 5.5% in 2023 and remain at 5% or higher through 2024.

Because the stock market is expected to remain under pressure in the coming months, dividend-paying healthcare stocks could cushion one’s portfolio by helping investors ensure a steady income stream. 

Thus, we think it could be wise to add fundamentally sound stocks Johnson & Johnson (JNJ), Pfizer Inc. (PFE), and Bristol-Myers Squibb Company (BMY) to one’s retirement portfolio.

Johnson & Johnson (JNJ)

JNJ is engaged in research and development, manufacturing, and selling healthcare products, primarily focused on human health and well-being. It offers its products to the general public, retail outlets and distributors, wholesalers, hospitals, and healthcare professionals.

On January 3, the company declared the first quarter dividend of $1.13 per share on its common stock, payable to shareholders on March 7, 2023. JNJ’s four-year average dividend yield is 2.60%, and its current dividend translates to a 2.62% yield on prevailing prices.

Its dividend payouts have grown at a 5.9% CAGR over the past three years and a 6% CAGR over the past five years. The company has a record of 60 years of consecutive dividend growth.

On December 22, 2022, JNJ acquired Abiomed, Inc. (ABMD), a leading provider of medical technology that provides circulatory support and oxygenation. This acquisition broadens JNJ’s MedTech portfolio and should strengthen its position in high-growth MedTech segments. Additionally, the transaction is expected to accelerate JNJ’s near and long-term sales and earnings growth.

During the fiscal third quarter (ended September 2022), JNJ’s sales to customers increased 1.9% year-over-year to $23.79 billion. The company’s net earnings grew 21.6% from the same period the prior year to $4.46 billion, while its net EPS came in at $1.68, representing a 22.6% increase year-over-year.

Street expects JNJ’s EPS to increase 5.2% year-over-year to $2.24 for the fiscal fourth quarter (ended December 2022). Its revenue is expected to increase 1.5% from the prior-year period to $23.78 billion in the current quarter ending March 31, 2023. The company surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.

Over the past three months, the stock has gained 3.5% to close the last trading session at $172.36.

JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has an A grade for Stability and a B for Value, Sentiment, and Quality. The stock is ranked #3 of 168 stocks in the Medical – Pharmaceuticals industry. Click here to see the other ratings of JNJ for Growth and Momentum.

Pfizer Inc. (PFE)

PFE specializes in biopharmaceutical products globally. Its portfolio includes medicines and vaccines served to wholesalers, retailers, healthcare providers, government agencies, pharmacies, and local communities.

On January 17, PFE expanded its ‘An Accord for a Healthier World’ product offering to include the full portfolio for greater benefit to 1.2 billion people in 45 lower-income countries. With this, the company now expands its initial offering under the Accord to include off-patent products, bringing the total offering from 23 products to around 500 products.

On December 29, 2022, PFE announced positive top-line results from the Phase 3 BENEGENE-2 study evaluating fidanacogene elaparvovec, an investigational gene therapy, for the treatment of adult males with moderate to severe hemophilia B.

Adam Cuker, M.D. Penn Comprehensive and Hemophilia Thrombosis Program said, “The BENEGENE-2 data demonstrate the promise of this gene therapy candidate as a potential one-time option for people living with hemophilia B as a means of reducing the clinical and treatment burden over the long term.”

In the same month, the company increased the quarterly dividend on its common stock to $0.41 per share for the first quarter, payable on March 3, 2023. Backed by the solid financials, this would mark the 337th consecutive quarterly dividend paid by PFE.

Also, its four-year average dividend yield is 3.63%, and its forward annual dividend of $1.64 translates to a 3.56% yield on the current price level. PFE’s dividends have grown at 5.5% and 5.7% CAGRs over the past three and five years, respectively. In addition, it has a record of 12 consecutive years of dividend growth.

PFE’s income from continuing operations increased 5.8% year-over-year to $8.62 billion in the fiscal third quarter (ended September 2022). Its non-GAAP net income grew 39.7% from the year-ago value to $10.17 billion. The company’s non-GAAP EPS increased 40.2% from the year-ago value to $1.78.

The consensus EPS estimate of $6.48 for the fiscal year 2022 (ended December 31, 2022) represents a 46.6% improvement year-over-year. The consensus revenue estimate of $100.41 billion for the last year indicates a 23.5% increase from the prior-year period. The company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

Over the past three months, the stock has gained 5.6% to close its last trading day at $46.08.

PFE’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to a Strong Buy in our proprietary rating system.

It has an A grade for Value and a B for Growth and Quality. Within the same industry, it is ranked #8. Click here to see the additional POWR Ratings of PFE (Momentum, Stability, and Sentiment).

Bristol-Myers Squibb Company (BMY)

BMY is a biopharmaceutical company offering pharmaceutical products for treating hematology, oncology, cardiovascular, immunology, fibrotic, neuroscience, and Covid-19 diseases.

On December 20, 2022, the company received approval in Japan for the CAR T Cell Therapy Breyanzi for the second-line treatment of relapsed or refractory large B-cell lymphoma (LBCL), regardless of whether autologous hematopoietic stem-cell transplantation is intended. The approval might benefit the company by meeting this unmet medical need.

On December 8, the company increased the quarterly dividend by 5.6% to $0.57 per share on the common stock, payable to its shareholders on February 1, 2023. This marks the 14th consecutive fiscal year the company has increased its dividend and the 91st consecutive year that the company has paid a dividend.

BMY’s four-year average dividend yield is 3.02%, and its forward annual dividend of $2.28 translates to a 3.15% yield on current prices. Its dividends have grown at 9.2% and 6.9% CAGRs over the past three and five years, respectively.

For the third quarter that ended September 30, 2022, BMY’s total in-line products and new product portfolio revenue increased 8% year-over-year to $8.62 billion. Its non-GAAP EBIT grew 0.9% year-over-year to $5.13 billion, while net earnings attributable to BMY increased 3.9% year-over-year to $1.61 billion. The company’s non-GAAP EPS increased 3.1% from its prior-year quarter to $1.99.

Analysts expect BMY’s EPS and revenue for fiscal 2023 (ending December 31, 2023) to increase 4.7% and 2.7% year-over-year to $7.98 and $47.14 billion, respectively. The stock surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.

Shares of BMY have gained 11.4% over the past year to close the last trading session at $72.31.

It is no surprise that BMY has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system. It also has an A grade for Value and a B for Stability, Sentiment, and Quality. Again, within the same industry, it is ranked #5 of 168 stocks.

Beyond what we’ve stated above, we’ve also rated BMY for Growth and Momentum. Get all BMY ratings here.

JNJ shares were trading at $170.96 per share on Wednesday morning, down $1.40 (-0.81%). Year-to-date, JNJ has declined -3.22%, versus a 3.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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