Johnson & Johnson (JNJ) is a Top Dividend Stock Right Now: Should You Buy?

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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Johnson & Johnson in Focus

Johnson & Johnson (JNJ) is headquartered in New Brunswick, and is in the Medical sector. The stock has seen a price change of 10.2% since the start of the year. Currently paying a dividend of $0.95 per share, the company has a dividend yield of 2.67%. In comparison, the Large Cap Pharmaceuticals industry's yield is 3.04%, while the S&P 500's yield is 1.92%.

Taking a look at the company's dividend growth, its current annualized dividend of $3.80 is up 7.3% 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 6.11%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Johnson & Johnson's payout ratio is 44%, which means it paid out 44% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for JNJ for this fiscal year. The Zacks Consensus Estimate for 2019 is $8.60 per share, which represents a year-over-year growth rate of 5.13%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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 have to be mindful 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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