3 Dividend Stocks For Summer


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Summer vacations may have investors wondering if the time is right to buy dividend stocks, but sitting on the sidelines because of third quarter doldrums may not be your best bet. In the past, dividend investors have been much better served by taking a long view that allows dividends to offset Wall Street's seasonal swings.
That could be particularly true for healthcare stocks Amgen (NASDAQ: AMGN), Healthcare Solutions (NASDAQ: HCSG) and Quality Systems (NASDAQ: QSII), three companies with intriguing prospects that are also historically strong performers in summertime. In the following slideshow, you'll learn more about these three dividend paying companies and why you may want to include them in your portfolio.

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3 Dividend Stocks For Summer

  1. 1. 3 Dividend Stocks for Summer
  2. 2. 3 Dividend Stocks for Summer 1. Amgen 1. One of the few dividend paying biotech companies. 2. A stable of top selling drugs. » Oncology. » Autoimmune disease. 2. Healthcare Services Group 1. A provider of housekeeping and dining services. » Serves nursing homes, retirement complexes, and hospitals. 3. Quality Systems 1. A healthcare IT solutions company. » Automates medical and dental practices. » Electronic health records for practices and hospitals. These three dividend paying healthcare stocks offer investors an intriguing blend of growth and dividends.
  3. 3. 1. Amgen Inc. • Neulasta/Neupogen: Commonly used to boost the immune system in chemotherapy, sales totaled $1.3 billion in Q1. – Despite expiring patents, Neulasta (expiration in 2015) and Neupogen (expired in 2013) are biosimilars. • Biosimilars pathway to approval is uncertain. • Biosimilars pricing and market share risk to branded drugs has so far been muted. • Enbrel: The widely used drug for rheumatoid arthritis and psoriasis had sales of $988 million in Q1. • Xgeva/Prolia: Sales of these bone bulking drugs grew 25% and 38% year-over-year, respectively, to a combined $475 million. • Pipeline opportunities. – Evolocumab: a PCSK9 inhibitor for the control of bad cholesterol. – Brodalumab: a psoriasis therapy. – T-Vec: a gene vaccine for melanoma. Amgen’s 2% forward dividend yield is supported by a stable of top sellers and fast-growing drugs.
  4. 4. Amgen Inc. Amgen’s cash dividend payout ratio, a measure of operating cash minus capital expenses and preferred dividends, is just 27%. That suggests there’s plenty of room for future dividend increases. The amount Amgen has paid in dividends has grown steadily since the company began paying dividends in 2011, indicating that the company is committed to rewarding investors.
  5. 5. 2. Healthcare Services Group – Manages housekeeping and dining services for 3,500 facilities. – Offers room for growth given that there are nearly 7,000 hospitals and 23,000 long term care & post acute care facilities in the United States. • Total housekeeping and dining spending of $31 billion. – 90% client retention rate offers predictable revenue. • Cross selling opportunity across various services. – $1.15 billion in 2013 revenue, up from $889 million in 2011. – $47 million in 2013 net income, up from $38 million in 2011. Healthcare Services Group not only operates in a fast-growing industry supported by aging baby boomers, but it also pays a healthy forward dividend yield of 2.3%.
  6. 6. Healthcare Services Group Healthcare Services cash dividend ratio, a measure of operating cash minus capex and preferred dividends, is high at 93%; suggesting it will need to grow sales and profit in order to increase its dividend. However, the amount of dividends paid to shareholders is trending higher over the past five years, indicating that the company has a good track record of returning such growth to investors.
  7. 7. 3. Quality Systems • 4,400 clients, including more than 300 hospitals and 85,000 providers. – Top #5 player in the industry. • Solutions that directly address: – Practice management. – Revenue management. – Health records management. – Population health analytics. • $460 million in revenue last year, up from $292 million in 2010. – 1/3 of physician practices expect to buy, replace, or upgrade their EHR system. • Free cash flow expected to hit a five year high of $75 million in 2014. – 73% of sales are recurring, up from 64% in 2010. Quality Systems operates in a growing industry tasked with modernizing healthcare systems to improve patient outcomes. The company’s forward dividend yield of 4.3% is intriguing.
  8. 8. Quality Systems Quality Systems cash dividend ratio, a measure of operating cash minus capex and preferred dividends, is roughly 55%. That suggests the company may have some opportunity to increase its dividend if sales begin growing again and profit expands. In the past five years, the amount paid out to shareholders has increased, but has held steady since 2012. That may indicate future increases will only happen if sales and net income climb.
  9. 9. Fool-worthy thoughts All three companies have intriguing businesses that operate in growing markets and their shares offer a solid history of posting gains during the third quarter. That may suggest that investors interested in owning shares in these companies shouldn’t hold off until fall. Amgen is the largest of the three companies and may be most appropriate for more risk-averse dividend investors interested in expanding their dividend portfolio beyond traditional pharmaceuticals into biotechnology. Healthcare Services and Quality Systems are much smaller companies and may prove more risky. However, both companies operate in markets poised to grow over the coming decade. Given that 10,000 baby boomers are turning 65 every day, demand for housekeeping and dining solutions for retirement homes, hospitals, and rehab hospitals is set to grow. If so, Healthcare Services may prove a good option for more risk-tolerant dividend investors. Similarly, an aging population is likely to increase the need for next generation electronic records systems that communicate freely between primary care, acute care, and specialists. That could help Quality Systems sales grow; however, Quality Systems competes in very aggressive market and as a result its revenue growth stalled last year. As a result, investors may want to traffic in this one a bit more carefully.
  10. 10. All 3 will have a tough time keeping up with these top dividend stocks.