Caveat Emptor When Buying High-Yield Drug Stocks
Income investors seemingly have hundreds of stocks to choose from that currently pay a dividend. The telecom and utility sectors often generate some of the most robust payouts for investors, with FactSet Research data from the third quarter of 2016 showing that sector aggregate yield for telecom was double that of the S&P 500 (4%, versus 2%).
By comparison, the healthcare sector is a major disappointment to income investors, with an average yield of about 1.8%. Scratching the surface, drug stocks would appear to be the perfect candidates to pay out a substantial yield given their exceptional pricing power, and the fact that they sell inelastic products. In other words, people can't control when they get sick or what ailment they contract, meaning demand for medicine isn't dependent on how well or poorly the U.S. economy is performing. But the data shows that drug stocks are often far from perfect dividend stocks.
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Source: Fool.com
