2 Healthcare Dividend Stocks to Hold for the Long Haul

Investors looking for stocks to hold on to for a while might want to consider dividend-paying companies. Besides offering a regular stream of passive income, dividend stocks have generally outperformed their non-dividend peers over the long run.

That's not surprising. Maintaining a growing dividend program through good times and bad requires a rock-solid business. Healthcare companies have an added advantage since they are in a defensive industry that performs comparatively better when the economy slows down.

With that backdrop, let's consider two healthcare dividend stocks for investors focused on the long game: Merck (NYSE: MRK) and Medtronic (NYSE: MDT).

1. Merck

The market's forward-looking nature explains why Merck's shares are down by 10% this year. Investors are already focusing ahead to 2028, when the company's biggest moneymaker by far, the cancer drug Keytruda, will lose patent exclusivity in the U.S.

And even before that, Keytruda could face competition from an investigational therapy called ivonescimab that is being developed to treat non-small cell lung cancer, among other diseases for which Keytruda has earned indications. Is there any way for Merck to get out of this bind?

Yes, there is. First, the company has been working on a subcutaneous version of its crown jewel that should earn many of the same indications as the original and extend its patent life. Ivonescimab's challenge might be real, but the medicine won't earn approval in the U.S. for at least a couple of years or so.

Furthermore, Merck is being proactive, as shown by its recent partnership with privately held China-based LaNova Medicines to develop LM-299, a bispecific antibody in the same class of medicines as ivonescimab.

Something might come out of Merck's partnership with LaNova, or maybe it will be a bust. The important point is that Merck, a longtime leader in oncology, will seek to find ways to get around this new challenge.

The company's success will also depend on products in other fields. That includes the newly approved Winrevair, a therapy for pulmonary arterial hypertension; Merck's vaccine business; its animal health unit, and more.

Its pipeline features more than 60 programs in phase 2 studies and more than 30 in phase 3 clinical trials. The company hasn't maintained its leadership in the pharmaceutical industry for decades by accident. Expect it to do the same for much longer.

Meanwhile, its financial results remain solid. Third-quarter revenue grew by a decent 4% year over year to $16.7 billion. The company's adjusted earnings per share of $1.57 were down 26% compared to the year-ago period, but that was because of acquisition-related expenses. It's nothing to worry about for investors.

Meanwhile, the dividend has increased by 80% in the past decade, and the company's forward yield tops 3.18%, compared to the S&P 500's average of 1.32%. Despite its poor stock market performance this year, Merck can overcome its challenges and continue rewarding shareholders with payout increases.

2. Medtronic

Medtronic, a medical device specialist, has struggled a bit in the past few years. Besides the pandemic severely disrupting its business, the company also dealt with slow revenue growth.

The company had plans to shed some of its low-growth units, but it eventually went back on that decision (although it did exit the unprofitable ventilator business). Still, the stock is worth buying for long-term dividend investors for three reasons: Its solid position in its market, several exciting growth opportunities, and an incredible dividend track record.

To the first point, Medtronic is one of the largest medical device companies in the world. Its portfolio has dozens of products, it routinely earns new approvals and indications, and it operates in over 150 countries. Medtronic has successfully navigated the healthcare industry for decades. That is no small feat in and of itself.

Secondly, the company is looking at some exciting opportunities. One of them is its diabetes care segment, which has been its biggest growth driver for some time. In the second quarter of its fiscal 2025, ended Oct. 25, revenue increased by 5.3% year over year to $8.4 billion. That's pretty good. However, the company's diabetes care unit increased sales even faster, reporting revenue of $686 million, or 12.4% higher than the year-ago period.

One of the business' most important products in this segment is its innovative MiniMed 780G insulin pump. Given the large addressable market in diabetes -- which affects more than a half-billion adults worldwide -- there is more work to be done here for Medtronic.

The company is also developing a robotic-assisted surgery (RAS) system, called Hugo, which is undergoing clinical trials in the U.S. The RAS market is severely underpenetrated. As Medtronic pointed out last year, less than 5% of procedures that can be performed robotically currently are. It could be another important long-term opportunity for the company.

And the third reason to make Medtronic a long-term holding: It has increased its dividend for 47 consecutive years and offers a forward yield of 3.20%. The company could become a Dividend King pretty soon and maintain its payouts for many years thereafter. That makes it a top income stock to buy and hold for good.

Should you invest $1,000 in Merck right now?

Before you buy stock in Merck, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Merck wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $872,947!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of December 2, 2024

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck. The Motley Fool recommends Medtronic and recommends the following options: long January 2026 $75 calls on Medtronic and short January 2026 $85 calls on Medtronic. The Motley Fool has a disclosure policy.