It’s a bloodbath out there. The S&P 500 fell another 1.6% last week. Now, the benchmark index consisting of the largest publicly traded stocks traded on U.S. markets is down a stunning 24.8% since the end of 2021.

With stock prices tanking left and right, investors looking for stocks to buy are increasingly interested in ones that can deliver reliable streams of passive income. There are a lot of options, but not all can be expected to both make and steadily raise their payouts year after year.

These three giants of the healthcare sector have been making and raising their payout for a long time. Here’s why their best days could still be in front of them.

1. CVS Health
Most of us are familiar with CVS Health’s (CVS) enormous chain of retail pharmacies and medical clinics. What you probably don’t realize is that the pharmacies you see are just a small part of this healthcare conglomerate’s increasingly profitable operation.

CVS Health is a great dividend stock to buy because it usually manages the healthcare benefits folks receive at its physical locations. The company has long owned a pharmacy benefits management business that currently handles prescription benefits for an estimated 110 million plan members. In 2018, CVS Health merged with Aetna, a major health insurer that collects premiums from around 35 million Americans.

Being the end provider of healthcare benefits that the company also gets paid to manage is an incredibly lucrative position to be in. In the second quarter alone, CVS Health recorded $5.4 billion in cash from operations and profits will more than likely rise as the company provides more primary care benefits. In September, CVS Health agreed to acquire Signify Health and its nationwide network of more than 10,000 clinicians for around $8 billion in cash.

At recent prices, CVS Health stock offers a 2.5% yield. This isn’t exactly tantalizing but it could rise sharply over the next few years. Over the past 12 months, the company needed just 17.5% of the free cash flow its operations generated to meet its dividend obligation.

2. Abbott Laboratories
Abbott Laboratories (ABT) is a healthcare conglomerate that offers a 1.9% yield at the moment. This isn’t the sort of dividend yield that gets investors’ blood pumping right now but it could get a lot bigger in a few years.

Abbott’s nutrition business was in the spotlight earlier this year, when the temporary closure of a single Abbott factory in Michigan led to a nationwide baby formula shortage. In addition to a nutrition business with very little competition, the company markets diagnostic products, cardiovascular devices, and a constant glucose monitor (CGM) for diabetic patients that are driving growth right now.

In May, the FDA cleared Abbott’s new CGM device, the Freestyle Libre 3. At the size of two stacked pennies, it’s far less obtrusive than similar devices by Abbott or its competitors.

An estimated 37 million Americans, or around 1 in 10, have diabetes. Healthcare plan sponsors are generally willing to pay for CGM devices that need to be replaced every other week. That’s because they’re a lot less expensive than hospitalizations that become necessary when patients don’t keep their blood glucose concentrations in an ideal range. With the CGM likely to lead the market for the foreseeable future, Abbott looks like a smart stock to buy now and hold for the long run.

3. AbbVie
Up until 2013, AbbVie (ABBV) was Abbott Laboratories’ biopharmaceutical segment. It spun off to shield Abbott from the impending loss of revenue from Humira. This is an injectable anti-inflammation drug used to treat rheumatoid arthritis, psoriasis, and related conditions.

International Humira sales fell to $699 million in the second quarter of 2022 compared to U.S. sales which actually grew to $4.6 billion. The international backsliding is due to biosimilar competition for branded Humira that became available throughout the EU in late 2018.

Right now you can get an above-average 3.9% yield from AbbVie shares because investors are worried about competition hammering U.S. Humira revenue next year. This stock looks like a smart buy because the company’s plan to offset Humira losses with sales of more recently launched drugs is working. AbbVie launched Rinvoq for arthritis and Skyrizi for Psoriasis in 2019. Combined sales of the pair reached $4.6 billion last year, and they’re expected to contribute a combined $15 billion to AbbVie’s top line in 2025.

The next couple of years could be nerve-wracking as biosimilar competition for Humira heats up. With a line-up of more recently launched drugs to offset the losses, though, this stock could deliver heaps of passive income to patient investors.

— Cory Renauer

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Source: The Motley Fool