Lengthened life expectancies, along with dropping fertility rates around the world, are sure to significantly raise the global median age in the decades that lie ahead. The global median age is projected to soar from 30.9 years of age in 2020 to 36.2 years by 2050.
A much older world should demand more goods and services from the healthcare sector, such as medical devices and health insurance. Let’s examine two great dividend payers that could cash in on this demographic trend.
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1. Medtronic: The leading pure-play medical devices company
With more than 90,000 employees in 150 countries around the world, Medtronic (NYSE: MDT) is focused solely on researching and manufacturing medical devices. The company’s portfolio of medical devices improves the quality of life of patients with a wide variety of common conditions ranging from heart disease to diabetes. This vast product lineup helps the company reach over 76 million patients each year.
What makes Medtronic such a great company is that it never stops innovating. The company spent almost $3 billion on research and development in its last fiscal year and has 235-plus clinical trials currently in progress. This dedication to promoting an inventive environment should continue to pay dividends for Medtronic in terms of new product launches.
And due to favorable demographics, it is anticipated the global medical devices market will grow from $471 billion in 2023 to $585 billion in 2027. Coupled with intact fundamentals at a company level, this is why I believe Medtronic should generate solid earnings growth over the long run.
The stock’s 3.4% dividend yield is twice the S&P 500 index’s 1.7% yield. But don’t let that high yield fool you; Medtronic’s quarterly dividend per share has nearly tripled in the past 10 years. And with the dividend payout ratio set to come in at around 52% for the fiscal year ending later this month, the stock’s payout is sustainable.
Medtronic’s valuation arguably seals the deal to make it a buy for dividend growth investors. The stock’s forward price-to-earnings (P/E) ratio of 15 is well below the medical devices industry average forward P/E ratio of 26.1.
2. Cigna: A great business at a dirt-cheap valuation
With nearly 190 million customer relationships as of Dec. 31, Cigna (NYSE: CI) is a well-established managed care company. The company’s $76 billion market capitalization makes it the fourth-largest health insurer in the world.
Out of all the industries in which a company could possess status as a leader, health insurance is one of the most favorable. A rising prevalence of disease and the growing adoption of health insurance are two significant factors that should serve as growth catalysts for the industry moving forward. In fact, market research company Imarc Group expects that the global health insurance industry will increase from $1.7 trillion in 2022 to $2.6 trillion by 2028.
This is why analysts believe Cigna will generate 11.3% annual earnings growth over the next five years. For context, this is just below the healthcare plans’ industry average earnings growth estimate of 12.7%.
Cigna’s 1.9% dividend yield is just above the S&P 500 index’s yield. Paired with a dividend payout ratio that is poised to clock in at approximately 20% in 2023, the company should offer an appealing mix of income and growth in the future. And at a forward P/E ratio of 9.1, Cigna is cheaply valued compared to the healthcare plans’ industry average forward P/E ratio of 13.8.
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Kody Kester has positions in Medtronic Plc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
