The Overlooked Dividend Powerhouses Outperforming Retail Giants in a Shifting Demographic Landscape

The U.S. is on the brink of a demographic earthquake. By 2035, the population aged 65 and older will account for 21% of the total population, up from 16% today. This shift is not just a statistical inevitability—it's a seismic realignment of economic priorities. While Wall Street has fixated on retail giants like Costco, the true dividend powerhouses are emerging in sectors tailored to the needs of an aging society. These overlooked stocks offer not only higher yields but also resilience in a world where retail margins are shrinking and consumer spending is increasingly inelastic.

The Aging Population: A Catalyst for Long-Term Growth

The Congressional Budget Office (CBO) projects that the U.S. population will grow from 350 million in 2025 to 372 million by 2055, driven primarily by immigration. However, the average age of the population is rising sharply, with annual deaths expected to exceed births starting in 2033. This demographic shift will reshape the economy in three key ways:
1. Healthcare Demand: Americans over 75 will spend $1.3 trillion annually by 2035, with a surge in demand for age-related treatments like knee implants, aortic valve replacements, and chronic care management.
2. Housing and Elder Care: The occupancy rate for senior housing facilities is projected to rise from 88% to 92%, while automation and robotics will address labor shortages in caregiving.
3. Financial Transfers: Nearly $100 trillion in wealth will shift from Baby Boomers to their heirs by 2048, likely redirecting capital toward stable, high-yield sectors.

These trends create a “longevity dividend” that far outpaces the cyclical nature of retail.

Undervalued Dividend Powerhouses: The Healthcare and Elder Care Leaders

Morningstar's analysis of 2025's market environment highlights a select group of undervalued stocks in healthcare and elder care, trading at significant discounts to their intrinsic value. These companies are not only positioned to benefit from aging demographics but also offer robust dividend yields and financial stability:

1. Pfizer (PFE): Trading at a 40% discount to its fair value of $42, Pfizer's pipeline in oncology and vaccines positions it for long-term growth. Its 3.2% dividend yield dwarfs Costco's 0.6%.
2. Philips (PHIA): A 38% discount to $39 fair value reflects its struggles in the sleep care segment, but its leadership in diagnostics and AI-driven imaging signals strong recovery potential.
3. Zimmer Biomet (ZBH): With a 28% discount to $130 fair value, this orthopedic implant leader is capitalizing on the surge in robotic surgeries and an aging population.
4. Coloplast (COLO B): A 33% discount to $14.10 fair value underscores its dominance in ostomy and continence care, with expansion into the U.S. market driving growth.

These stocks combine high-quality fundamentals with sector-specific tailwinds, offering a compelling alternative to the retail sector's volatility.

Why Costco's Valuation Is a Red Flag

Costco (COST), a retail darling, currently trades at a P/E ratio of 52.98—well above its five-year average and 200% higher than the 24.44 P/E of Coca-Cola (KO). While Costco's membership model has historically driven steady earnings growth, its 0.6% dividend yield is a stark contrast to the 2.96% offered by KO and the 3.2% from Pfizer. Analysts warn that Costco's elevated valuation leaves little room for error, particularly as e-commerce disrupts traditional retail and margins face downward pressure.

The Case for Healthcare Over Retail: Stability and Inelastic Demand

The key differentiator between these sectors lies in the nature of demand. Healthcare spending for seniors is inelastic—people will always need medical care, housing, and essential services. In contrast, retail spending is cyclical and susceptible to economic downturns. For example, the aging population's spending on home modifications, Medicare Advantage plans, and robotic caregiving is projected to grow by 80% by 2035. These are not discretionary purchases; they are necessities.

Moreover, automation and AI are reshaping elder care, creating new revenue streams for companies that adapt. While Costco invests in e-commerce logistics, healthcare firms are leveraging AI diagnostics, telemedicine, and robotics to scale efficiently. This technological edge ensures that healthcare stocks can maintain margins even as input costs rise.

Investment Advice: Prioritize Longevity-Driven Sectors

For income-focused investors, the data is clear: healthcare and elder care stocks offer superior long-term stability and higher yields than retail giants. Here's how to approach the market:
1. Target MedTech and Elder Care REITs: Companies like Zimmer Biomet and Ventas (VTR) are undervalued and poised for demographic-driven growth.
2. Diversify Across Policy-Driven Growth: Medicare Advantage expansion and pension reforms are creating tailwinds for insurers and home care providers.
3. Avoid Overvalued Retail Plays: Costco's high P/E and low yield make it a less attractive bet in a low-growth environment.

The aging population is not a passing trend—it's a structural shift that will define the next decade of investing. By focusing on dividend powerhouses in healthcare and elder care, investors can secure their portfolios against the volatility of traditional retail while capitalizing on one of the most powerful demographic forces of our time.

In the end, the longevity dividend isn't just about outperforming—surviving in a rapidly aging world requires foresight. The market is already pricing in the future; now, it's time to act.