Exploring High-Yield Dividend Stocks in the Healthcare Sector

While options like REITs and energy stocks often dominate discussions about dividends, healthcare offers hidden potential for steady income. The sector’s resilience stems from aging populations and constant demand for medical services, making it an attractive but often overlooked choice. Some healthcare companies provide impressive yields alongside solid financials and promising long-term growth.

If you’re considering adding healthcare stocks to your portfolio, this article highlights three companies with dividend yields of at least 6%. This is a significant jump compared to the sector’s average of 1.55%. However, evaluating factors beyond just dividends is essential for making informed investment choices. Let’s review these dividend contenders to determine whether they are undervalued or just excessively compensating investors.

Organon & Co.: Strong Dividends Amid Analyst Caution

Unlike many research firms that reinvest profits, Organon & Co. (NYSE: OGN) breaks the mold by offering a 6.84% dividend yield, backed by an impressive 25.99% annual growth rate over the past three years. With a competitive payout of 22.63% of its cash flow as dividends, the company also has a price target of $21.33, suggesting a potential upside of 45.12% along with its steady cash flow.

However, be wary of indicators that could signal unsustainable payouts. Although Organon & Co. witnessed a modest 9% drop in short interest last month, it still has 16.58 million shares short, representing 6.46% of its float. Analysts have issued a Hold rating on OGN, reflecting concerns over a declining price prediction trend that has been ongoing since 2021.

Walgreens: Could Recent Changes Improve Its Outlook?

Walgreens Boots Alliance (NASDAQ: WBA) has faced challenges in recent years, primarily due to decreasing foot traffic in its stores, a situation that has not significantly rebounded since the pandemic. In 2024, Walgreens announced plans to close 1,200 additional underperforming locations, continuing a trend of store closures. Nevertheless, the company is currently offering a 10.23% dividend yield, although it has experienced a 19.12% decline in annualized dividend growth over the past three years.

Despite these cuts, Walgreens’ $1.00 annual dividend may present a solid investment opportunity, especially given recent drops in short interest and stock pricing. Short interest fell by 13.58%, indicating a rise in investor confidence. Additionally, the company surpassed its latest consensus EPS estimate by over 34%, continuing a trend of increasing revenue that started in early 2024. 

As the stock hovers near a 52-week low, it might be an opportune moment for investors. Still, keep an eye out for possible future dividend cuts.

Spok Holdings: Investment Caution Advised

Spok Holdings, Inc. (NASDAQ: SPOK) offers exposure to international healthcare technology while delivering a substantial dividend yield of 7.48%. The company has maintained an impressive three-year dividend growth rate of 35.72%, appealing to investors in today’s inflationary climate.

However, Spok’s sustainable dividend outlook raises red flags. With a staggering dividend payout ratio of 171.23%, it significantly exceeds the 75% threshold often cited as a warning sign for dividend traps. If you choose to invest in Spok Holdings, brace yourself for the likelihood of a dividend cut in the near future.

Analysts remain divided on the stock, issuing a Hold rating with a consensus price target of $15.00, reflecting an 8.59% potential downside. Some positive indicators exist, as Spok’s short interest recently decreased by 6.56%, with only 1.59% of shares shorted. Still, exercise caution when considering this investment.

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.