Income-seeking investors can find plenty of opportunities in any market environment.
Dividend stocks offer a great way to add cash to your portfolio and help you increase your overall returns over time. Whether you use that dividend money to add to your portfolio or withdraw it, these types of stocks can help you diversify the types of businesses in which you own shares.
When it comes to investing in dividend stocks, you need to make sure that the companies you buy have a strong underlying business and a balance sheet that supports and helps increase the dividends being paid. A high dividend stock will also have a track record of maintaining and increasing its dividend in a wide range of market environments.
On that note, here are two of the best dividend stocks to consider for your portfolio. Both are performing well whether the bull market continues or bearish investor sentiment returns. If the bear market returns, these stocks have proven over the decades that they are safe to hold.
1. Johnson & Johnson
Johnson and Johnson (JNJ 0.25%) has paid and increased its dividend every year for 62 years and counting. That puts the pharmaceutical giant in a very select group of companies that have earned the nickname Dividend King.
J&J has a forward dividend yield of 3.4%, which is more than double the average yield among S&P 500 Looking back over the past decade, Johnson & Johnson's dividend has grown by an average of 6% annually. Its payout ratio is a very manageable 30%.
J&J's dividend helps offset the stock's relatively weak performance over the past few years. The weak stock performance also goes some way to explaining the above-average performance. The stock is down due to several factors, but one of the biggest is ongoing litigation and potential multi-billion dollar liabilities related to its talc products. The company has approximately $26 billion in cash on its balance sheet to help manage these ongoing lawsuits and eventually pay settlements while maintaining its commitment to shareholders.
Investing in Johnson & Johnson also means investing in a company that has been on the market for 138 years and is one of the leading pharmaceutical companies in the world in terms of revenue. Over the past 12 months, the company has made more than $17 billion in profits on about $86 billion in revenue. It has also generated approximately $24 billion in leveraged free cash flow looking back over the last 12 months.
Last year, J&J spun off its slower-growing consumer healthcare products segment into a company called KenvueThe two remaining divisions (pharmaceutical and medical device) are growing faster and should help J&J boost its growth efforts in the coming years. The company has returned approximately 60% of free cash flow to investors over the past five years, while 65% of sales come from products in which it controls the first or second position in global market share.
In the short term, this is likely not a business for growth-oriented investors. However, long-term investors looking for a company that generates consistent financial gains from a broad portfolio of valuable pharmaceuticals and medical devices may find Johnson & Johnson an attractive investment opportunity. With its share price underperforming, Johnson & Johnson's dividend history makes the company an attractive option for income-seeking investors. When its underlying problems, including costly litigation, are eventually resolved, share prices are likely to rise.
2. Coca-Cola
Coca Cola (IS -0.41%) The beverage giant doesn't generate huge gains in its share price, but its increases in its share price and dividends have helped generate a total return of 46% over the past five years and more than 108% over the past 10 years.
Founded in 1886, the company now operates one of the largest beverage operations in the world. Coca-Cola controls approximately 46% of the soft drink market in the United States, one of its largest markets.
Over the past 12 months, Coca-Cola has made profits of about $11 billion on revenues of $46 billion. It has maintained a profit margin of about 23%, an exceptional figure in an industry where margins are historically very thin. The company has a dividend payout ratio of about 74%, which is relatively high but still quite manageable. Its dividend has grown by an average of 5% annually over the past decade.
In the last 12 months alone, the company has generated operating cash flow of approximately $12 billion, with leveraged free cash flow of approximately $11 billion. Currency headwinds and a fluctuating macroeconomic environment have weighed on the company's growth in recent years, but its commitment to the dividend and the strength of its balance sheet remain a testament to the resilience of this business.
Investors who buy and hold for the long term and seek constant growth of their portfolio and dividends You can find many interesting things about Coca-Cola.
Rachel Warren has positions in Johnson & Johnson. The Motley Fool has positions and recommends Kenvue. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
