Creating multiple streams of passive income is a well-known strategy for achieving financial independence. However, identifying truly valuable passive-income opportunities can be a daunting task.
Enter Tier 1 dividend stocks: equities from companies that have demonstrated an unwavering dedication to shareholder rewards through consistent distributions and dividend increases. These financial powerhouses often have decades of not just paying dividends but growing them as well.
Let's explore one standout Tier 1 dividend stock that deserves a place in any investor's portfolio, particularly someone seeking a reliable and generous passive-income stream.
Image source: Getty Images.
The must-own passive income generator
Healthcare conglomerate Johnson & Johnson(NYSE: JNJ) stands out as an exemplary Tier 1 dividend stock. With its rich history of innovation and dependability in dividend payments, J&J has cemented its position as a cornerstone holding for income-focused investors.
The company's impressive 3.28% yield more than doubles the average yield of S&P 500 companies, ranking it among the highest-yielding blue chip dividend stocks.
Beyond its attractive yield, J&J distinguishes itself as a top passive income stock for four compelling reasons:
- Dividend longevity: J&J's robust free-cash-flow generation has enabled it to maintain consistent dividend payments for decades, establishing it as a highly dependable passive income source.
- Persistent dividend growth: Not only has J&J been paying dividends, but it has also increased them for an astounding 62 consecutive years, highlighting both the company's growth and its commitment to shareholder returns.
- A diversified business model: As a leader across multiple healthcare sectors, including pharmaceuticals and medical devices, J&J's varied portfolio provides a cushion against economic uncertainties, further solidifying its status as a premier dividend stock.
- Strong institutional backing: Despite ongoing talcum powder litigation, J&J maintains a 72% institutional ownership base. These long-term shareholders help stabilize the share price, enhance liquidity, and drive demand for the stock.
Potential headwinds
Even a blue chip healthcare giant like J&J isn't without its risks. Investors should be aware of a few potential headwinds, including:
- Upcoming patent expirations.
- Intensifying competition, particularly in oncology.
- A relatively modest late-stage pipeline compared to some competitors.
- An elevated payout ratio of 70%.
- Recent dividend increases that haven't been quite as generous as those from other top dividend growers (see graph).
JNJ dividend growth (annual); data by YCharts.
Despite these risk factors, Wall Street analysts remain optimistic about J&J's future. The average analyst price target suggests a potential upside of over 10% in the next 12 months, indicating confidence in the company's ability to navigate these hurdles.
A potential cornerstone for retirement portfolios
For those building a retirement portfolio designed to withstand economic turbulence and provide steady income, J&J presents a compelling opportunity. Its resilience and consistent performance over the years have proved its worth as a foundational asset, offering both stability and growth potential.
J&J epitomizes the blue chip dividend stock, making it an essential consideration for any investor seeking passive income. Its unwavering commitment to shareholder returns, coupled with a robust and diversified business model, positions the healthcare stock as a standout choice for those looking to generate income with minimal effort.
Should you invest $1,000 in Johnson & Johnson right now?
Before you buy stock in Johnson & Johnson, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Johnson & Johnson wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $774,281!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of July 15, 2024
George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends S&P Global and Visa. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
