What Makes a Good Stock Dividend? 3 Top Healthcare Picks

Why Dividend Investors Should Look Beyond High Yields

For income investors, the allure of a high dividend yield can be hard to resist. If you're looking at a stock like Pfizer, which currently offers a 7.2% yield, it might seem like an attractive option. However, focusing solely on yield can be misleading. Dividend reliability is just as important as the percentage itself, especially for those who rely on dividends to support their lifestyle.

While Pfizer is a well-managed company, its current situation reflects broader challenges in the pharmaceutical industry. Patent expirations and shifting market dynamics are common hurdles for drugmakers. However, the company’s high yield also signals concerns among regulators and consumers about vaccines. These factors add complexity that investors need to consider.

The Importance of Dividend History

When evaluating potential investments, it's crucial to look at a company's history of maintaining or increasing dividends. This is where companies like Merck stand out. Despite facing similar industry challenges as Pfizer, Merck has a stronger track record of supporting its dividend through tough times. In 2009, Pfizer cut its dividend after acquiring Wyeth, which was a significant setback for income-focused investors. Merck, on the other hand, has maintained its payout consistently, making it a more reliable choice for long-term investors.

Merck’s current yield of around 4% may not be as high as Pfizer’s, but its commitment to dividend stability makes it a better option for those prioritizing consistency over short-term gains.

Omega Healthcare: A Testament to Resilience

Another strong contender in the healthcare sector is Omega Healthcare. As a real estate investment trust (REIT) focused on senior housing, the company faced significant challenges during the COVID-19 pandemic. Nursing homes and similar facilities were hit hard due to the vulnerability of elderly residents. Despite this, Omega Healthcare did not cut its dividend, even though it didn’t raise it either.

This decision demonstrated the company’s commitment to its shareholders, making its nearly 6.4% yield particularly appealing. Moreover, with the pandemic now behind us, Omega Healthcare has been investing in new assets, which should help drive growth. The company reported an 8% year-over-year increase in adjusted funds from operations (FFO) in the second quarter of 2025, signaling a positive outlook for the future.

The Dividend King Approach

For investors seeking the most reliable dividend stocks, the concept of "Dividend Kings" is worth exploring. These are companies that have increased their dividends for over 50 consecutive years. Johnson & Johnson is a prime example, having raised its dividend for over 60 years. While its current yield is around 3%, it still offers a higher return than the average healthcare stock, which typically yields around 1.7%.

Despite its strong dividend history, Johnson & Johnson isn't without its challenges. Like its competitors, it faces issues related to patent expirations and competition. Additionally, the company is dealing with a lingering class-action lawsuit involving talcum powder products. However, given its long-standing commitment to dividend growth, it remains a top choice for investors who prioritize reliability.

Don’t Be Tempted by High Yields Alone

While Pfizer has its merits, a closer look at Merck, Omega Healthcare, and Johnson & Johnson reveals that a high yield alone isn't enough to make a stock a good investment. These companies offer a more balanced combination of income reliability and yield, making them more attractive for long-term dividend portfolios.

Investors should take the time to evaluate not just the numbers, but also the history and stability of a company’s dividend. By doing so, they can build a more resilient and profitable portfolio.