When investors think about health care stocks, growth is often the first word that pops into their minds. This happens with good reason, as health care issues are often quintessential growth stocks. By a growth stock we mean the shares of a company whose earnings are increasing at a higher rate than that of its peers. In general, growth stock investors focus on the denominator in the price-to-earnings (P/E) ratio, looking for companies or industries where high expected earnings growth will propel stock prices upward. Such issues typically do not offer generous dividend yields, as company managements usually prefer to reinvest profits in the business in order to take advantage of high returns on capital and support bottom-line growth, rather than distribute a greater portion of net income to shareholders in the form of dividends.

That said, there are healthcare companies that pay dividends, a number of which are quite generous. To find some of these issues, we screened the Drug, Medical Supply, Medical Services, Pharmacy Services, and Biotechnology Industries. First, we looked for companies with dividend yields above 1.0% and, then, to help ensure the dividends were sustainable, we limited the results to those firms with long-term debt as a percentage of total capital below 50%. Most of the highest-yielding stocks that our screen returned were Drug companies. Not too surprisingly, only one Biotech company made the cut.

Nova Nordisk

Nova Nordisk (NVO) is a major producer of insulin and diabetes-care products, as well as treatments for coagulation disorders, and hormone replacement therapy products. Its world market share for insulin stands at 51%. It is truly a world player with 2010 sales by region: North America, 39%; European Union, 31%; Japan and Korea, 9%; China, 7%; other, 14%.

The company currently returns roughly a third of its profits to shareholders in the form of dividends. Value Line Analyst Mario Ferro thinks that although this percentage may come down a bit over the next few years, it should remain in the 25% range out to mid-decade due to share repurchases and increased capital expenditures. Nova is enjoying great top- and bottom-line success, a trend that new product development, and ongoing momentum of the modern insulin franchise, should continue to support.

Indeed, September-quarter results show that the company’s bread and butter, its modern insulin business, posted an 11% sales increase through the first nine months of 2011. Meanwhile, the diabetes business continues to gain significant traction with new therapies, specifically Victoza. Management, as a result, has upped its already healthy guidance.

Teva Pharmaceutical Industries Limited

Teva Pharmaceuticals (TEVA), based in Israel, is a global pharmaceutical company that develops, manufactures, and markets generic and proprietary branded drugs as well as active pharmaceutical ingredients. About 85% of sales are derived from North America and Europe. Teva’s largest proprietary branded products include Copaxone (used to treat multiple sclerosis, MS) and Azilect (for Parkinson’s disease).

Steady dividend growth has been synonymous with Teva since the company’s inception more than 20 years ago. Although earnings growth stalled this summer, management has kept shareholders in mind, and dividend growth has remained a priority.

Recently, the shares have come under pressure ahead of a study that pitted Copaxone against Biogen’s (BIIB) cutting edge MS drug BG-12. Investors were proven right since the study found that BG-12 lowered the relapse rate in patients with multiple sclerosis by 44 percent (compared with a placebo), versus Copaxone’s 29% reduction rate. Although we anticipate that this will have a negative impact on Teva’s results, we think the reaction may have been overly severe, and that the stock now offers a compelling valuation.

To help aid the probable slowdown in Copaxone sales, Teva has hit the acquisition market, recently acquiring Cephalon, Inc. The move helps to expand Teva’s branded and specialty pharmaceuticals businesses, and should strengthen its generic offerings, the latter of which we expect to become a bigger piece of the puzzle as time goes by and healthcare spending becomes more of an expense for Corporate America and individuals. Further, Value Line Analyst J. Susan Ferrara looks for new product launches to help bottom-line growth get back on track by yearend, and projects that dividend increases will continue to be made.

Amgen, Inc.

Amgen Inc. (AMGN) is the world’s largest independent biotechnology medicines company. It discovers, develops, manufactures, and markets medicines for grievous illnesses. The company’s principal products —which represented 93% of total sales in 2010— are: Aranesp and EPOGEN (treat anemia in patients with chronic renal failure, etc.); Neulasta and Neupogen (fight infections in patients undergoing chemotherapy, etc.), and Enbrel (treats autoimmune diseases).

The dividend game is new to Amgen; it initiated its first ever disbursement this past August in the form of a $0.28-per-share payout. Although the company boasts a healthy cash reserve, the timing of the move was a bit surprising since its product lineup has come under pressure, and in certain situations been called into question. However, the breadth of the pipeline leads us to believe that quarterly payouts will be sustainable.

Third-quarter results handily exceeded expectations, prompting the company to announce a new capital deployment plan, with a new $10 billion share repurchase program at the top of its agenda. Nevertheless, dividend growth looks to be on the docket, as well. 

At the time of this article's writing, the author did not have positions in any of the companies mentioned.