Dividend stocks offer a great way to add cash to your portfolio and help you increase your overall returns over time. Whether you use that dividend money to add to your portfolio or cash it out, these types of stocks can help you diversify the types of companies you own shares in.
When it comes to investing in dividend stocks, you want to make sure that the companies you buy have a strong underlying business and balance sheet that will support and grow the dividends they pay. A top dividend stock will also have a history of maintaining and increasing its dividend across a wide range of market environments.
With that in mind, here are two top dividend stocks to consider for your portfolio. They all perform well whether the bull market continues or bearish investor sentiment returns. When the bear market returns, these stocks have proven to be safe to hold over the past few decades.
1. Johnson & Johnson
Johnson & Johnson (NYSE: JNJ) has paid and increased its dividend every year for 62 years, making the pharmaceutical giant one of a very select group of companies that have earned the nickname Dividend King.
J&J boasts a forward dividend yield of 3.4%, which is more than twice the average yield under S&P 500 stocks. Looking back over the past decade, Johnson & Johnson’s dividend has grown an average of 6% per year. The payout ratio is a very manageable 30%.
J&J’s dividend helps make up for the stock’s relatively weak stock performance in recent years. The weak stock performance also goes some way to explaining the higher-than-average returns. The stock has fallen based on several factors, but one of the biggest is the ongoing lawsuits and potential billion-dollar debt related to its talc products. The company has approximately $26 billion in cash on its balance sheet to help manage these ongoing lawsuits and ultimately pay settlements, while maintaining its commitment to shareholders.
Investing in Johnson & Johnson also means putting cash into a company that has been around for 138 years and is one of the largest pharmaceutical companies in the world by revenue. In the trailing twelve months, the company has brought in more than $17 billion in profit on revenue of about $86 billion. It has also generated about $24 billion in free cash flow, looking back over the last twelve months.
Last year, J&J spun off its slower-growing consumer healthcare product segment into a company called Kenvue. The remaining two divisions — pharmaceuticals and medical devices — are growing faster and should help J&J scale its growth efforts in the years ahead. The company has returned about 60% of free cash flow to investors over the past five years, while 65% of revenue comes from products where it holds the top or second global market share position.
In the short term, this is probably not a company for growth-oriented investors. However, long-term investors looking for a company that generates stable financial profits from a broad portfolio of valuable pharmaceutical products and medical devices may find Johnson & Johnson an attractive investment opportunity. With its stock price underperforming, Johnson & Johnson’s storied dividend history makes the company an attractive choice for income-seeking investors. When the underlying problems, including expensive lawsuits, are finally resolved, stock prices are likely to rise.
2. Coca-Cola
Coca-Cola (NYSE:KO) boasts a dividend yield of around 3% and has also been steadily increasing its dividend for 62 years. The beverage giant is not generating huge share price gains these days, but its dividend and share price increases have contributed to a total return of 46% over the past five years and more than 108% in the subsequent ten years.
Founded in 1886, the company now operates one of the largest beverage operations in the world. Coca-Cola has about 46% of the soft drink market in the US, one of the largest markets.
Over the past twelve months, Coca-Cola has made a profit of approximately $11 billion on sales of $46 billion. The company maintains a profit margin of around 23%, an exceptional figure in an industry where margins have historically been razor thin. The company has a payout ratio of around 74%, which is relatively high, but still quite manageable. The dividend has grown by an average of 5% per year over the past ten years.
In the past 12 months alone, the company has generated approximately $12 billion in operating cash flow, with free cash flow of approximately $11 billion. Currency tailwinds and a volatile macro environment have impacted the company’s growth in recent years, but the company’s commitment to its dividend and the strength of its balance sheet remain testaments to the resilience of this business.
Long-term buy-and-hold investors looking for steady portfolio growth and dividends can find a lot to like in Coca-Cola.
Should you invest $1,000 in Johnson & Johnson now?
Before you buy Johnson & Johnson stock, you should consider the following:
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Rachel Warren holds positions at Johnson & Johnson. The Motley Fool has positions on and recommends Kenvue. The Motley Fool recommends Johnson & Johnson and recommends the following options: Long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
2 Unstoppable Dividend Stocks to Buy During a Stock Market Sell-Off originally published by The Motley Fool
