As silly as it may sound, there’s truth to the old saying that the best way to make money is to stop losing money. Even in our present age of meme-stock mania, there should always be a home in your portfolio for less risky investments that you can count on no matter the economic conditions.
The trio of stocks I’ll discuss today are stable because they offer products and services that companies in the healthcare sector need to succeed. And they each pay a tidy dividend, so their share prices aren’t as volatile as they might otherwise be. While there’s no guarantee that they’ll beat the market 100% of the time, all three are worthy picks for the defensive section of your diversified portfolio, so let’s dive in.
1. Abbott Laboratories
Abbott Laboratories (NYSE:ABT) is one of the largest healthcare companies on the planet, and it makes a massive variety of products. Whether it’s with surgical tools, coronavirus tests, baby formula, or antibiotics, Abbott Labs serves the market. And because people and hospitals simply can’t go without the goods that it makes, its business is quite steady.
Importantly, Abbott Labs continues to grow by launching new product lines, like its FreeStyle Libre glucose monitor. Since the second quarter of 2016, its quarterly revenue has risen by 92.8%, thanks to steady expansions of its product portfolio.
While it isn’t exactly a growth stock, its rising revenue does provide for substantial shareholder returns over time in the form of dividends. For nearly the last 50 years, Abbott Labs has increased its dividend on an annual basis, making it a Dividend Aristocrat, one of the most reliable dividend-paying stocks. In other words, investors can have confidence in the stability of this company’s cash flow, as management wouldn’t approve raising the dividend so often over such a long period if they didn’t think it were sustainable. But, its forward dividend yield is only around 1.4% right now, so it probably won’t make you rich anytime soon. Still, that’s a bit more than the market’s average yield of 1.29% this year.
AstraZeneca (NASDAQ:AZN) has been in the headlines since 2020 thanks to its coronavirus vaccine, but there’s a lot more to the company than just that. With a massive portfolio of drugs on the market and about 160 projects in its development pipeline, it’s constantly churning out opportunities to grow future revenue.
AstraZeneca is a relatively safe investment because healthcare systems around the world need a constant supply of its oncology, respiratory, and gastrointestinal medications to treat their patients. And, as a result of its long and successful history of developing new drugs and commercializing them worldwide, there’s little reason to suspect any major unforeseen drop-offs in revenue.
While the company does face consistent pressure from competitors, as well as the future expiration of intellectual property (IP) protections for its drugs on the market, its annual profit margin has grown over the past three years to reach nearly 13%. Over the same period, quarterly revenue was up by nearly 54%.
Since it’s one of the world’s largest pharmaceutical companies, AstraZeneca’s comfortable position is no surprise. That’s what allows it to pay a quarterly dividend, which has a forward yield of 2.49% at the moment. But, investors should be aware that AstraZeneca’s dividend payment has a history of increasing and decreasing from quarter to quarter.
3. Alexandria Real Estate Equities
Unlike AstraZeneca and Abbott Laboratories, Alexandria Real Estate Equities (NYSE:ARE) is a real estate investment trust (REIT). Its business model is to lease and manage life-sciences laboratory space to biotechs and pharmaceutical companies in industry hubs such as Boston.
That means its income is highly predictable, and also that its revenue base is highly resilient against external economic conditions. After all, its tenants need to pay the rent every month if they have any aspirations to keep performing the research and development (R&D) work that’s necessary to have a shot at commercializing medicines.
What’s more, as a landlord, Alexandria sets the terms of its leases such that the rent will rise by predictable amounts over time. So even though it continues to build out new laboratory space to lease to new customers, it can rely on significantly higher revenue in the future solely from its existing clientele. In other words, this stock’s low risk profile is practically encoded in its leasing contracts.
And those contracts are long-lived, so investors can count on the dividend to remain secure. On average, the company’s tenants have a remaining lease length of 7.5 years. Of course, buying new buildings and converting them to laboratory space is capital-intensive, so investors shouldn’t necessarily expect Alexandria’s top line to explode over time. But shareholders can expect management to raise the dividend payment again in the future. Though its forward yield is only 2.24%, the dividend itself has increased steadily with each quarter since its inception in 1998.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.