Would you like a stock portfolio that generates enough passive income to fuel your retirement dreams? If you answer yes, like most investors, you owe it to yourself to check out the healthcare sector.

In the U.S. alone, healthcare-related spending reached a stunning $4.3 trillion in 2021. Unlike most areas of the economy, healthcare services are a top priority in good economic times and bad. Such a motivated consumer base allows for plenty of businesses with reliably growing profits.

These three healthcare businesses offer above-average dividend yields at the moment, plus they have a history of raising their payouts. Here’s why investors who buy them now could end up with a big passive income stream that continues growing for the rest of their lives.

1. Medtronic
Medtronic (MDT) offers the lowest dividend yield on this list. At 3.1%, though, it’s significantly higher than the average stock in the S&P 500 index, which currently offers a 1.7% yield.

With over $30 billion in annual sales, Medtronic sells more medical devices than any other company on Earth. It manufactures run-of-the-mill items you can find in almost any hospital room. The company also leverages its status as a one-stop shop for healthcare professionals to promote innovative new products.

Around 40 years ago, Medtronic launched the MiniMed insulin pump. Recently, it took a step toward the multibillion-dollar U.S. market for minimally invasive surgical procedures. A clinical trial with its robotic-assisted surgery system, called Hugo, began in the U.S. last December.

Consistently launching innovative new devices has served Medtronic’s investors well. The company recently declared its 45th consecutive annual dividend raise. Investors who buy the stock now will most likely see the 3.1% yield they receive continue rising long enough to fuel their retirement dreams.

2. AbbVie
AbbVie (ABBV) is a giant drugmaker that spun out from the healthcare conglomerate, Abbott Laboratories, in 2013. Abbott wanted to protect itself from the loss of patent-protected exclusivity for Humira that’s happening in the U.S. right now. In January, Amgen launched a biosimilar version called Amjevita that’s available at a list price that’s 55% below Humira’s list price.

U.S. Humira revenues reached $4.97 billion in the third quarter of 2022, and this figure could get cut in half this year. This is why shares of AbbVie offer a 4.1% yield that is more than twice the average yield for dividend-paying stocks in the S&P 500 index.

Before you let Humira’s demise frighten you away from this high-yield stock, the company made some smart investments with the immense cash flows it provided. For example, Rinvoq for arthritis and Skyrizi for psoriasis are drugs that AbbVie launched in 2019, and they’re already on pace to generate more than $17.5 billion in combined annual sales for AbbVie in 2025.

AbbVie’s highly profitable operation produced a whopping $21.9 billion in free cash flow over the past 12 months, and the company needed just 45% of this sum to meet its dividend commitment. With younger products to offset Humira losses, continuing its 10-year streak of annual dividend raises should be a breeze.

3. Medical Properties Trust
As its name implies, Medical Properties Trust (MPW) is a real estate investment trust (REIT). As such, it can avoid paying income taxes, so long as it distributes at least 90% of profits to shareholders as a dividend. At the moment, its dividend offers a mouthwatering 9.1% yield.

Medical Properties Trust is one of the largest owners of hospitals and acute care facilities on the planet, which is a great business to be in. Spending on hospital care services in the U.S. rose 4.4% in 2021 to reach $1.3 trillion.

Medical Properties Trust has raised its dividend payout every year for 10 consecutive years. It’s hyper-reliable because instead of running the hospitals it owns, it gets hospital operators to sign long-term leases.

Inflation isn’t much of an issue for this stock because annual rent escalators are already built into its long-term lease agreements. The net leases that Medical Properties Trust prefers also transfer responsibility for all the variable costs of building ownership, such as maintenance and property taxes, to its tenants. With hyper-reliable cash flows, this could be the best healthcare dividend stock on the planet.

— Cory Renauer

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Source: The Motley Fool