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What’s the best dividend stock to own now?
It’s one of the best businesses in the world, and the kind of stock that has outlasted wars, recessions, and financial panics.
In fact, there have been 10 bear markets since 1961, and this company has increased its dividend through all of them.
That makes it a true “sleep-well-at-night” kind of investment.
I own over 100 stocks in my personal portfolio, and this stock is by far my largest holding.
I went from below broke at age 27 to financially free at 33 by living below my means and investing in high-quality dividend growth stocks. Stocks just like the one I’m going to tell you about today.
You see, high-quality dividend growth stocks tend to outperform the broader market over the long haul. Plus, you get significant and rising passive dividend income on top of it.
But you want to build that freedom on great businesses. You want a sturdy foundation.
Well, the stock I’m discussing today is one of the highest-quality companies in the world. It’s my largest personal holding.
And I think it’s the best dividend stock to own now.
I’m talking about Johnson & Johnson (JNJ).
This company was founded in 1886. That’s over 130 years of corporate history.
Now employing 130,000 people, they’ve grown into one of the largest healthcare conglomerates in the world.
Healthcare is not a discretionary area of one’s spending. If you need medical assistance, you’re going to do whatever it takes to acquire that assistance.
This necessity of the products that Johnson & Johnson produces means they’re poised to continue increasing their profit and their dividend.
The company primarily operates through three large businesses.
The first is pharmaceuticals. This business provides a range of therapeutics designed to improve and lengthen life. Major drugs include Remicade and Stelara. This segment accounted for 51% of last fiscal year’s sales.
The second is medical devices. This business provides a variety of healthcare products like implants and surgical instruments. The medical devices segment accounted for 32% of last fiscal year’s sales.
The third is consumer. This business sells a wide spectrum of personal care products. Think first aid, skin care, and over-the-counter medicines. This segment accounted for 17% of last fiscal year’s sales.
Healthcare is something that continues to advance. That advancement and natural inflation tends to lead to higher prices.
Combine higher prices with more people being born every day, along with the fact that more people around the world now have access to quality medicine, and you can see how Johnson & Johnson has a massive tailwind blowing on them.
While you wait for that tailwind to result in a higher stock price, you can count on one of the most reliable dividend income streams out there.
There’s nothing like waking up to fresh money you didn’t go to sleep with!
Johnson & Johnson has increased its dividend for 57 consecutive years.
Just think of how many economic challenges have occurred over the last 57 years.
Multiple wars. Recessions. Turmoil. Upheaval. Huge changes in society and technology.
Yet Johnson & Johnson kept on pumping out a bigger dividend, year in and year out.
In fact, they just increased their dividend by 6.3% – during a global pandemic!
That’s not too far off from their 10-year dividend growth rate of 6.9%. They’re not missing a beat.
For perspective, when I first bought this stock in 2010, it was paying a $0.54 quarterly dividend. It’s now paying a $1.01 quarterly dividend. My dividend income almost doubled all by itself, without me lifting a finger.
The dividend is protected by a payout ratio of 63.0%, which promotes more dividend raises in the future.
Further promoting more dividend growth is, of course, the business growth.
Revenue has grown by more than $20 billion over the last decade – up from $61.587 billion to $82.059 billion.
And earnings per share advanced from $4.78 to $5.63 over this period.
While that doesn’t look spectacular, it belies the strength of the business. This company prints cash, despite regular adjustments to GAAP earnings. It generated almost $20 billion in free cash flow last fiscal year. That’s enormous.
Of course, there are always risks to investing in any business. This isn’t a risk-free investment.
But it’s about as sure a thing as it gets if you love the idea of living off of growing dividend income that’s backed by one of the best companies on the planet.
It’s my largest personal holding. A significant chunk of my dividend income comes from Johnson & Johnson. And believe me, I sleep like a baby.
Now, I don’t think this stock is cheap right now.
The P/E ratio is approximately 23. That might appear a bit high, but it’s also on depressed earnings.
Another way to look at the valuation is that it’s selling for just over 17 times cash flow, which is right in line with its three-year average.
The stock also offers a 2.7% yield right now. That’s the same yield as what the stock has averaged over the last five years, but it is higher than the S&P 500’s yield.
So this stock is giving you more income than the market, along with that incredible track record of dividend growth.
I don’t see this stock as undervalued.
But paying a fair price for a wonderful business is never a bad idea. And this is the kind of business that long-term investors should want to own.
You buy a stock like this to hold for the long term, reinvest those growing dividends, let compounding go to work for you, and watch your wealth and passive income exponentially increase.