Two Healthcare Stocks Rewarding Income Seekers: AbbVie and Medtronic

When it comes to income-generating investments, healthcare stocks often don’t top the list. The sector has earned a reputation for prioritizing growth and innovation over shareholder returns—and for good reason. Most pharmaceutical and medical device companies must continuously funnel profits back into research and development to stay competitive. Yet within this landscape exist rare exceptions: healthcare stocks that consistently grow their dividends while maintaining yields that actually matter to income investors. AbbVie and Medtronic stand out as two such opportunities, each having mastered the art of balancing R&D investments with reliable shareholder payouts.

Why Healthcare Stocks Struggle with Dividends (And These Two Don’t)

The headline numbers tell the story: the average dividend yield for large-cap healthcare stocks sat at 1.67% by the close of 2025—a solid middle-of-the-pack result when compared to the 11 major market sectors, but trailing far behind income-rich utilities. The structural challenge is simple: unlike utilities, which benefit from predictable, regulated revenue streams, healthcare companies face an ongoing patent cliff. Blockbuster drugs lose their patent protection, generic competitors flood the market, and sales plummet overnight. This uncertainty forces continued aggressive investment in R&D pipelines.

But size and diversification change the equation. AbbVie and Medtronic have grown large enough and diverse enough to generate the kind of free cash flow that permits both innovation spending and steadily rising dividends. Both are approaching or have achieved Dividend King status—having increased their payouts for 50 consecutive years or more.

Medtronic: Medical Innovation Drives Steady Shareholder Returns

Medtronic, with a market capitalization of $132 billion, holds the position of the largest independent medical device manufacturer globally. The company’s portfolio spans from battery-operated pacemakers and defibrillators to heart valves, insulin pumps, and surgical instruments. Yet in recent years, the company has expanded beyond traditional hardware into artificial intelligence-driven smart devices—including GI Genius, an AI system that assists physicians in detecting minute polyps during colonoscopies, and PillCam, an ingestible camera that provides internal digestive tract visualization.

This diversification strategy is paying dividends—literally and figuratively. In the second quarter of fiscal 2026, Medtronic reported revenue of $9 billion, representing 6.6% year-over-year growth. Earnings per share jumped 8% over the same period to $1.07. Looking ahead, the company projects 2026 revenue growth of 5.5% with adjusted EPS increasing 4.5%.

The dividend story is equally compelling. Medtronic’s most recent 1.4% dividend increase marked its 48th consecutive year of payout growth, with a current yield hovering around 2.75%. While the payout ratio of 69% sits elevated, the company’s anticipated revenue growth trajectory appears sufficient to sustain this commitment. The planned spinoff of its diabetes division—the smallest and least profitable segment at 8% of revenue—should prove accretive to the bottom line without threatening dividend continuity.

AbbVie: Navigating the Post-Humira Era with Portfolio Diversification

AbbVie operates in a different league within the pharmaceutical sector, currently sporting a dividend yield of 2.98% and having raised its quarterly payout 5.5% to $1.73 per share this year alone. The company’s dividend credentials are remarkable: though AbbVie exists as an independent entity only since its 2013 spin-off from Abbott Laboratories, including its history as part of Abbott, the company has increased its dividend for 54 consecutive years. That distinction places it among the exclusive club of Dividend Kings—one of merely 56 companies spanning all sectors to achieve this milestone.

The company’s greatest challenge has been navigating away from Humira dependence. A decade ago, this single immunology drug accounted for 63% of AbbVie’s total revenue. But the company’s leadership invested heavily during Humira’s peak profitability years, building an alternative immunology portfolio now anchored by Rinvoq and Skyrizi. In the most recent quarter, Skyrizi claimed the top spot with $4.7 billion in sales, while Rinvoq generated $2.2 billion, and Humira—though diminished—still contributed $993 million.

Aggressive investment in oncology expansion is beginning to show returns. The company has substantially upgraded its solid tumor arsenal by adding Elahere (ovarian cancer), Emrelis (lung cancer), and Epkinly (lymphoma) alongside established blood cancer drugs Imbruvica and Venclexta. Oncology now represents nearly 11% of revenue and represents a significant growth vector.

The dividend sustainability math works in AbbVie’s favor. Though the payout ratio of 58% appears modest by some standards, it reflects real financial stability. The company generated $11.11 in free cash flow per share over the trailing twelve months, making the annual dividend payout of $6.92 comfortably sustainable. Third-quarter results underscored the company’s operational strength: revenue reached $15.8 billion, up 9% year-over-year, despite a 38% EPS decline driven by strategic investments in in-process R&D and milestone expenses—precisely the kind of forward-looking spending that should fuel future growth.

Built for Income: How These Healthcare Stocks Compare

Both AbbVie and Medtronic exemplify a rare breed of healthcare stocks—companies with the scale, market position, and cash generation to function like utilities in terms of dividend reliability, while maintaining the innovation edge of growth businesses.

The size advantage cannot be overstated. When one business segment faces headwinds, another typically steps in to sustain momentum. AbbVie’s transition from Humira dominance to a more balanced immunology plus oncology portfolio illustrates this principle in action. Similarly, Medtronic’s ability to expand into smart devices while maintaining strong core medical device sales demonstrates how healthcare stocks with sufficient scale can invest in emerging opportunities without sacrificing current returns.

AbbVie’s cash generation machine is particularly noteworthy: the company generated more than $19 billion in free cash flow last year. This abundance permits both heavy R&D investment—currently supporting 90 programs in the pipeline, including 60 mid- or late-stage candidates—and a steadily growing dividend. Medtronic, meanwhile, leverages its market dominance in medical equipment to fund innovation while remaining disciplined about capital allocation.

The Bottom Line: A Healthcare Stock Strategy for Dividend Investors

For income-focused investors seeking healthcare stocks that offer more than token yields, AbbVie and Medtronic provide genuine alternatives. Both companies have demonstrated the ability to grow dividends consistently while navigating competitive pressures that would challenge smaller, less diversified competitors. AbbVie’s strong cash position and proven innovation track record give it a slight edge in this analysis—the company proved during the Humira era that even while stewarding massive profit pools, it would reinvest in pipeline development rather than rest on laurels.

Neither company offers the growth trajectory of smaller biotech or medical device startups. But they offer something equally valuable for dividend portfolios: reliable, growing income streams backed by market-leading positions and fortress balance sheets. In an interest rate environment where income matters, healthcare stocks with these credentials deserve serious consideration from total-return investors.

Disclosure: James Halley holds positions in AbbVie. The Motley Fool holds positions in and recommends AbbVie and Abbott Laboratories. The Motley Fool recommends Medtronic.