“Dividend Kings” are a select group of companies that have an impressive history of raising dividends for at least 50 consecutive years. These companies have displayed financial stability, strong management, and a dedication to returning value to shareholders.
Two such well-established companies are healthcare juggernaut Johnson & Johnson (JNJ) and consumer giant Procter & Gamble (PG). Their ability to maintain and increase dividends through various economic cycles suggests financial resilience and prudent management.
With artificial intelligence (AI) stocks capturing all of the attention lately, this category of old-school, reliable companies is frequently overlooked - which may explain some of the drop in share price for both stocks in 2023, compared to the S&P 500 Index's ($SPX) gain of around 25%. However, if you are an investor looking for steady and dependable passive income, J&J and P&G might just be the right dividend stocks for you.
Johnson & Johnson: 2.9% Dividend Yield
Johnson & Johnson is globally renowned for its popular consumer brands, which include Listerine, Neutrogena, and Benadryl, among others. However, last year, the company spun off its consumer segment as a separate company, Kenvue (KVUE), in which it owns a 9.5% stake. The idea behind the spin-off was to concentrate on its core businesses, pharmaceuticals and medical technology.
For the past 62 years, J&J has consistently increased dividends, earning the title of Dividend King. With a rich history dating back to 1886, the company has not only weathered numerous economic cycles, but has also demonstrated resilience and adaptability time and again.
Even without the consumer segment, J&J can thrive in its Innovative Medicine (formerly Pharmaceutical) and MedTech segments. Innovative Medicine is focused on developing life-changing drugs, and contributed $13.9 billion to the total revenue of $21.4 billion in the third quarter. Additionally, adjusted earnings per share (EPS) increased by 19.3% to $2.66.
Its immunology drugs, Stelara and Tremfya, experienced double-digit sales growth in the quarter. Furthermore, oncology drugs Darzalex and Erleada contributed $3.1 billion to total revenue.
With the AI market thriving, J&J has the option to expand its MedTech segment, which generated $7.5 billion in revenue in Q3.
With a robust pipeline of innovative products and more in the works, J&J continues to grow, ensuring it remains committed to returning money to shareholders. At the end of Q3, it had $20 billion in free cash flow. Looking ahead, analysts predict J&J’s revenue and earnings to increase by 3.7% and 8.1%, respectively, in 2024.
J&J has a dividend yield of 2.9%, which exceeds the healthcare sector average of 1.55%. Its dividend payout ratio of 42.8% appears sustainable, implying the possibility of continued dividend growth in the future.
Is JNJ a Buy, According to Wall Street?
Wall Street has assigned a “moderate buy” rating to JNJ overall. Out of the 19 analysts covering the stock, eight rate it a “strong buy,” two rate it a “moderate buy,” and nine rate it a “hold.”
The mean target price on the stock is $175.12, which is 7.8% above current levels. Meanwhile, its high target price of $195 implies a potential upside of 20% in the next 12 months.
Procter & Gamble: 2.5% Dividend Yield
Founded in 1837, Procter & Gamble has evolved into one of the world's top consumer goods companies. Its brands, such as Gillette, Braun, Head & Shoulders, Pampers, and Tide, resonate with consumers worldwide.
This brand loyalty has allowed the company to maintain strong fundamentals, allowing it to raise dividends consistently over the last 67 years. PG currently offers a dividend yield of 2.5%. Furthermore, its dividend payout ratio of 54% suggests there is room for additional dividend growth in the future.
In April 2023, the company raised its quarterly dividend by 3% to $0.9407 per share, marking the 67th dividend increase and the 133rd consecutive dividend payment since its inception.
Despite inflationary pressures last year that affected consumer companies, P&G reported a strong start to fiscal 2024. This highlights the company’s brand strength.
In the first quarter ended Sept. 30, net sales increased 6% year-over-year to $21.9 billion. The company's diluted EPS grew 17% to $1.83. P&G generated 97% of its net earnings as free cash flow, allowing it to pay out $2.3 billion in dividends and $1.5 billion in share repurchases. Furthermore, P&G expects to generate 90% of net earnings as free cash flow in fiscal 2024. It also intends to distribute $9 billion in dividends and repurchase $5 billion to $6 billion in stock.
P&G's commitment to innovation has been a key driver of its success. P&G's continuous investment in research and development ensures a robust pipeline of innovative products. The ability to anticipate and meet changing consumer preferences positions the company for sustained growth in the years to come.
For the full fiscal year 2024, P&G expects net sales to increase by 2% to 4%, while earnings could jump by 6% to 9% year-over-year. Meanwhile, analysts predict revenue and earnings growth of 3.5% and 8.9%, respectively, for fiscal 2024.
Is PG a Buy, According to Wall Street?
Overall, Wall Street rates Procter & Gamble's stock as a “moderate buy.” Out of the 18 analysts covering PG, 10 rate it a “strong buy,” two rate it a “moderate buy,” and six rate it a “hold.”
The mean target price for the stock is $167, which implies a potential upside of 10.9% in the next 12 months.
Why Should You Choose These Dividend Kings?
While higher dividend yields are always appealing, income investors should prioritize consistency and dividend growth when selecting dividend stocks.
A long history of increasing dividends is often seen as a positive sign, reflecting the company's sound financial health and management's belief in the company's future prospects. It reflects disciplined capital allocation and a commitment to shareholder value. And both J&J and P&G have proven their worth here, making them the best dividend stocks to buy right now.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
