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

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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Johnson & Johnson in Focus

Based in New Brunswick, Johnson & Johnson (JNJ) is in the Medical sector, and so far this year, shares have seen a price change of 4.71%. The world's biggest maker of health care products is paying out a dividend of $1.06 per share at the moment, with a dividend yield of 2.57% compared to the Large Cap Pharmaceuticals industry's yield of 2.49% and the S&P 500's yield of 1.42%.

Looking at dividend growth, the company's current annualized dividend of $4.24 is up 6.5% 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 6.08%. 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 46%, meaning it paid out 46% of its trailing 12-month EPS as dividend.

JNJ is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $9.65 per share, which represents a year-over-year growth rate of 20.17%.

Bottom Line

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.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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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