Technology

This is Why Johnson & Johnson (JNJ) is a Great Dividend Stock

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Johnson & Johnson in Focus

Headquartered in New Brunswick, Johnson & Johnson (JNJ) is a Medical stock that has seen a price change of 7.48% so far this year. The world's biggest maker of health care products is paying out a dividend of $0.9 per share at the moment, with a dividend yield of 2.6% compared to the Large Cap Pharmaceuticals industry's yield of 2.7% and the S&P 500's yield of 1.98%.

Taking a look at the company's dividend growth, its current annualized dividend of $3.60 is up 1.7% from last year. In the past five-year period, Johnson & Johnson has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.40%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Johnson & Johnson's payout ratio is 44%, which means it paid out 44% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, JNJ expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $8.58 per share, which represents a year-over-year growth rate of 4.89%.

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. It's important to keep in mind that not all companies provide a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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 presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).


Click to get this free report

Johnson & Johnson (JNJ): Free Stock Analysis Report

To read this article on Zacks.com click here.

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