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Dividend stocks are the lifeblood of great portfolios. Dividends not only pad your wallet and help buoy your portfolio during downturns, but they also act as beacons to draw your attention to well-run companies. Think about it: A company wouldn't share its profits with investors if its long-term outlook wasn't rock-solid.
One dividend stock to rule them all
However, more than 3,000 stocks have paid a dividend over the past year, making the process of choosing one quite difficult -- unless, of course, we're talking about the one dividend stock to rule them all: Johnson & Johnson (JNJ 0.67%).
Why is Johnson & Johnson a no-brainer dividend stock to consider buying? To start with, how about its practically unparalleled healthcare diversification!
Johnson & Johnson is comprised of three operating segments -- consumer healthcare products, medical devices, and pharmaceuticals -- with each serving a critical role.
J&J's formula for success
The consumer healthcare products segment, which includes brand-name juggernauts such as Tylenol, Band-Aid, Listerine, and Aveeno, offers the slowest growth rate, but delivers the most predictable and consistent cash flow. Because a number of J&J's consumer products offer inelastic demand, meaning they'll be bought at a fairly stable rate regardless of whether we're in a growing or slowing economy, the company is able to raise its prices to at least match the current rate of inflation.
Johnson & Johnson's medical device segment has recently been growing at a slower pace than its historical average, largely because competition around the globe has increased. But, you won't find any worries here because J&J's globally diversified device business should benefit from an aging population domestically and abroad. This is a long-tail growth opportunity that shareholders can wait to see develop thanks to J&J's consumer products cash flow and its rapidly growing pharmaceutical segment.
Finally, J&J relies on its brand-name drug development pipeline to pump up its margins and drive its growth. Between 2009 and 2014, J&J brought 14 new molecular entities to market, seven of which became blockbusters (by definition, drugs that generate $1 billion or more in sales annually). Looking ahead, Johnson & Johnson anticipates filing for FDA approval for 10 expected blockbusters by the end of the decade. Its latest approved drug, Darzalex, a third-line treatment for multiple myeloma, could be the first of many new blockbusters.
Image source: National Cancer Institute.
Putting J&J over the top
But, there's more than just J&J's balanced business model that makes it the premier dividend stock to own.
For instance, J&J is also looking to grow by acquisition. The company is sporting $37 billion in cash and $17 billion in net cash, giving it remarkable flexibility to find the right deals. Purchasing another company is a quick way J&J can boost its profitability and deliver for its shareholders.
Johnson & Johnson is also one of just three U.S. companies that still bears a AAA-credit rating, along with software giant Microsoft and oil juggernaut ExxonMobil. This rating, handed out by Standard & Poor's, implies that J&J's outlook and cash flow leave little doubt that it'll be able to meet its debt obligations.
And, of course, we have Johnson & Johnson's practically unparalleled streak of raising its dividend for 53 straight years. Only 10 of the more than 7,000 publicly listed companies boast longer streaks of raising their payouts. Johnson & Johnson's current dividend yield of 3% handily trumps the average 2% yield of the S&P 500, and its expected payout ratio of 49% in 2015 suggests its streak isn't in danger of ending anytime soon.
Johnson & Johnson is truly the dividend stock to rule them all!
