Two Blue Chip Health Companies The Institutions Are Buying

Key Points

• The institutions are buying Johnson & Johnson and Abbot Laboratories. 
• The two are Dividend Kings with the power to continue raising their dividends for years. 
• One is ready to rebound, the other to continue leading the broad market higher. 

If you are looking for a healthy dividend in the healthcare sector, look no further than Abbott Laboratories (NYSE: ABT). These companies are among the highest-quality Dividend Kings not just in their industry; they both have the power to continue raising their dividends long into the future. Add in fact the institutions are buying them and there is an opportunity not only to buy these stocks but at a time when powerful tailwinds are blowing. 

Abbott Laboratories Is Crowned A Divided King 

Abbott Laboratories is a well-known Dividend Aristocrat that was just crowned a Dividend King. The company has increased its dividend on a split and spin-off adjusted basis for 50 years as of the last increase which is a very telling indicator for investors. This company has forward-looking management and the ability to withstand market downturns and come out stronger.

That’s why the institutions own 73% of the company and are buying more. The institutions have been net buyers for 3 of the last 4 quarters and have scooped up an additional $4.3 billion worth of stock in that time. That is about 2.3% of the market cap and is helping the stock to bottom in the back half of 2022. 

Price action in Abbott has been in decline for the last few quarters due to the post-COVID blues. COVID-related testing and supplies are still a large portion of revenue but the good times are over and sales are declining. The takeaway for investors is the core business is larger than before the pandemic and the analysts are buying it. The Marketbeat.com consensus of 14 analysts is a Moderate Buy that has held steady for the last couple of years. 

The price target is down on a YOY basis but holding steady in the near and mid-term while implying about 15% of upside for investors. The next earnings report will come in mid-January 2023 and it may help lift the stock. Among the company’s recent woes is the baby-formula recall which may be behind the company now. The latest analyst commentary is from Citigroup which raised its price target to just over the current consensus. 

Johnson & Johnson Is A King Of  Dividend Kings 

Johnson & Johnson NYSE: JNJ doesn’t have the longest history of consecutive annual increases but it is not far off with 60 of them. This is longer than most investors have been alive and the dividend metrics suggest another 60 years if possible. At 44%, the payout ratio is sufficiently low and the balance sheet is well managed so there is no reason to think otherwise.

In terms of yield, Johnson & Johnson edges out Abbot at 2.6% compared to 1.75% and it offers some value as well. JNJ stock is trading about 17X its earnings compared to 20X for Abbott so it is possible JNJ will be the better performer in 2023. 

In regard to the institutions, the activity has slacked off over the past 2 quarters but net action for the year is bullish to the tune of roughly $7 billion. That’s about 1.5% of the current market cap and a tailwind that is helping this stock to trend higher. The analysts, however, are less optimistic and are rating JNJ at a Hold compared to Abbott’s Moderate Buy. The price target, which is down in the 12, 3, and 1-month comparison, is only 1.5% above the recent price action as well so may cap gains in the near term. Johnson & Johnson will next report earnings in late January 2023.