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Why Johnson & Johnson (JNJ) is a Great Dividend Stock Right Now

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

Cash flow can come from bond interest, interest from other types of investments, and of course, 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 3.09% so far this year. The world's biggest maker of health care products is paying out a dividend of $1.01 per share at the moment, with a dividend yield of 2.49% compared to the Large Cap Pharmaceuticals industry's yield of 2.44% and the S&P 500's yield of 1.28%.

Taking a look at the company's dividend growth, its current annualized dividend of $4.04 is up 1.5% 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 5.83%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Johnson & Johnson's current payout ratio is 50%. This means it paid out 50% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, JNJ expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $9.48 per share, with earnings expected to increase 18.06% 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. But, not every company offers 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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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