If you’re worried about whether you’ll have enough passive income to support your lifestyle in retirement, you’re not alone. Having to spend more just to maintain their current standard of living is a constant concern for most families.
There isn’t much you can do to stop the march of inflation, but you can prepare. Filling your portfolio with dividend-paying stocks that grow quarterly payouts faster than the underlying rate of inflation could even lead to extra spending money.
Medtronic(NYSE: MDT), Bristol Myers Squibb(NYSE: BMY)and AbbVie(NYSE: ABBV) they have many years of reliable dividend growth. If there’s one part of the economy that investors can count on to grow in good macroeconomic conditions and bad, it’s the healthcare sector.
You can put off buying a new car for years, but health problems rarely give the customers of these companies an option. Here’s how adding them to your portfolio and holding onto them for the coming decade gives you a great opportunity to earn a growing passive income stream.
Medtronic started with pacemakers in the 1950s. Cardiovascular devices such as leadless pacemakers and replacement valves are still a big part of the business, but there is much more. For example, it sells implantable devices that can relieve chronic back pain.
Surgeons around the world using an expanding suite of Medtronic’s minimally invasive solutions have enabled the company to increase its dividend for 47 consecutive years. At recent prices, the stock offers an attractive 3.5% yield.
In the USA and other developed countries, the population is aging. Older people use a lot of health services, which increases overall spending. The US will spend $4.9 trillion on health care in 2023, which is 7.5% more than a year earlier.
Last year, Medtronic earned a good 5.5 billion dollars free cash flow but it only needed 66% of this amount to meet its dividend obligation. Given the unstoppable trend of rising health care costs, investors can reasonably expect many more dividend payout increases in the years to come.
In the US, prescription drug spending is up 11.4% from last year to $450 billion in 2023. With this tailwind, Bristol Myers Squibb has been able to increase its dividend payout for 16 consecutive years. The stock offers a 4.3% yield at last prices.
Shares in Bristol Myers Squibb have been under pressure as it has aging blockbusters in its lineup that could soon lose market share. For example, Eliquis is an oral blood thinner that generated $3 billion in sales during the third quarter of 2024. It is responsible for 25% of total revenue, but will likely begin competing with generic versions in the US in early 2028.
While Bristol Myers Squibb could lose revenue from Eliquis in a few years, its portfolio of recently launched drugs with longer periods of market exclusivity could more than offset the losses. The company’s growing portfolio, which contributes 49% of total sales, increased sales in the third quarter by 18% year over year.
Recently, the Food and Drug Administration approved an injectable version of Bristol Myers Squibb’s successful cancer therapy, Opdivo. Sales of the infused version of the immunotherapy rose to $2.3 billion in the third quarter. An easy-to-administer injectable version that is interchangeable with the infusion could allow Bristol Myers Squibb to retain Opdivo’s revenue when the infusion version begins to lose its patent-protected market exclusivity in a few years.
AbbVie is another large pharmaceutical company made up of many parts moving in opposite directions. Its former flagship drug is the anti-inflammatory injection Humira.
At recent prices, AbbVie shares offer a 3.7% yield. The company has more than quadrupled its dividend payout since it was spun off from Abbott Laboratories in 2013.
Competition with lower costs biosimilar versions of Humira burden the sale of successful injection. In the first nine months of 2024, AbbVie reported a 34% year-over-year decline in Humira sales to $7.3 billion.
Despite Humira’s heavy losses, total revenue for the first nine months of 2024 rose 3% year-over-year. A pair of drugs launched in 2019, Skyrizi for psoriasis and Rinvoq for arthritis, are making up for Humira’s losses on their own.
In the third quarter, Skyrizi’s sales increased 51% compared to the previous year and reached an annual value of 12.8 billion dollars. Rinvoq’s sales increased 45% year-over-year to an annualized $6.4 billion.
With Humira’s biggest losses already on record, AbbVie could grow by high single digits in 2025 and beyond. Adding stocks to a diversified portfolio now looks like a great idea for most income-seeking investors.
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Cory Renauer has no position in any of the listed stocks. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories and Bristol Myers Squibb. The Motley Fool recommends Medtronic and recommends the following options: $75 long Medtronic January 2026 calls and $85 short January 2026 Medtronic calls The Motley Fool has a disclosure policy.
