Building multiple passive income streams is a common path to early retirement. In practice, however, discovering valuable passive income streams can be a serious challenge.
Tier 1 dividend stocks, or stocks backed by companies with an unwavering commitment to rewarding shareholders through regular payouts and dividend increases, are a simple way to cut through the noise.
Many of these companies have been paying dividends for decades, and even better, they’ve been growing dividends for decades as well. Here’s a quick overview of one Tier 1 dividend stock that’s an excellent choice for any type of investor looking for a generous and relatively safe passive income stream.
One passive income vehicle that every investor should own
An exemplary Tier 1 dividend stock is the healthcare giant Johnson & Johnson (NYSE: JNJ). With a storied history of innovation and reliability in dividend payments, J&J has established itself as a cornerstone in the portfolios of investors who prioritize long-term income generation. Speaking at this point, the healthcare company’s yield of 3.31% is more than double the average yield S&P500 publicly traded companies, and it also has one of the highest yields among the top dividend stocks.
Aside from its high yield, J&J stands out as one of the best passive income stocks for four key reasons:
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Decades of dividend paymentsJ&J’s exceptional free cash flow generation has enabled it to pay out consistent dividend payments to shareholders for decades, making it a highly reliable passive income stream.
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Consistent dividend growth: J&J not only pays dividends, but has increased them for 62 consecutive years, demonstrating the company’s growth and commitment to rewarding loyal shareholders.
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Diversified income streams: As a leader in multiple healthcare sectors, such as pharmaceuticals and medical devices, J&J’s diversified portfolio provides a cushion against economic uncertainty, further solidifying its position as a top dividend stock.
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A rock-solid shareholder base: Despite the headwinds from J&J’s talcum powder litigation, the company still boasts a 71% institutional ownership base at the time of writing. Institutional investors tend to be long-term shareholders, which helps reduce stock price volatility, increase liquidity and stimulate demand for shares.
What are the risks?
Even leading healthcare stocks like J&J have some important risk factors that investors should carefully consider. J&J’s biggest risk factors include upcoming patent headwinds, increasing competition – especially in oncology, and a relatively weak late-stage pipeline compared to some of its closest competitors.
However, Wall Street analysts don’t think these risk factors will ultimately derail the company’s growth trajectory or its ability to continue paying a strong dividend in the coming years.
A solid foundation for retirement-oriented portfolios
For investors looking to build a retirement portfolio that can weather economic storms and provide stable income, J&J is an attractive choice. Its resilience and performance over the years have proven that it can be a fundamental asset, offering both stability and growth potential.
J&J represents the epitome of a premium dividend stock, making it an essential passive income tool for any investor. Its relentless commitment to dividend payouts and increases, coupled with its robust, diversified business model, make the healthcare stock a great choice for those looking for a simple way to make money passively.
Should You Invest $1,000 in Johnson & Johnson Now?
Before you buy shares in Johnson & Johnson, consider the following:
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George Budwell has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
1 Passive Income Vehicle Every Investor Should Own was originally published by The Motley Fool
