Johnson & Johnson (JNJ) Could Be a Great Choice

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Johnson & Johnson in Focus

Headquartered in New Brunswick, Johnson & Johnson (JNJ) is a Medical stock that has seen a price change of -4.36% so far this year. The world's biggest maker of health care products is paying out a dividend of $1.19 per share at the moment, with a dividend yield of 3.18% compared to the Large Cap Pharmaceuticals industry's yield of 2.51% and the S&P 500's yield of 1.58%.

Taking a look at the company's dividend growth, its current annualized dividend of $4.76 is up 1.3% from last year. Over the last 5 years, Johnson & Johnson has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.57%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Johnson & Johnson's payout ratio is 46%, which means it paid out 46% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for JNJ for this fiscal year. The Zacks Consensus Estimate for 2024 is $10.64 per share, with earnings expected to increase 7.26% from the year ago period.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, JNJ is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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