Johnson & Johnson (JNJ) Could Be a Great Choice

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Johnson & Johnson (JNJ) is headquartered in New Brunswick, and is in the Medical sector. The stock has seen a price change of 16.96% since the start of the year. Currently paying a dividend of $1.30 per share, the company has a dividend yield of 2.15%. In comparison, the Large Cap Pharmaceuticals industry's yield is 2.13%, while the S&P 500's yield is 1.46%.

Looking at dividend growth, the company's current annualized dividend of $5.20 is up 1.2% 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 5.37%. 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. Johnson & Johnson's current payout ratio is 48%, meaning it paid out 48% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for JNJ for this fiscal year. The Zacks Consensus Estimate for 2026 is $11.54 per share, which represents a year-over-year growth rate of 6.95%.

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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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This article originally published on Zacks Investment Research (zacks.com).

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