Dividend stocks are great because they offer you payments no matter how they perform -- and no matter how the market performs. So, even when market times are tough, you can count on these stocks to keep your portfolio afloat. And in better times, it's always nice to collect the extra income, or even reinvest the payment to increase your holding of a particular stock.
But how can you be sure a company will stick with dividend payments? Of course, there's no way to be 100% certain, but some elements should make us pretty confident.
One is the company's financial situation. High levels of free cash flow, paired with a reasonable cash dividend payout ratio, suggest the company can afford to make these payouts and even lift its dividend. Second is the dividend track record. If the company raises its dividend nonstop for a number of years, rewarding shareholders is clearly a priority. These sorts of players could pay you a lifetime of passive income -- and here are two to buy now and hold forever.
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1. AbbVie
AbbVie (ABBV -0.77%) formed in 2013 when it split from healthcare giant Abbott Laboratories. Abbott is a Dividend King, meaning it's lifted its dividend for more than 50 years. AbbVie is continuing with the tradition, having increased its quarterly payments by 285% since the company's creation.
The pharma giant recently announced a 4.7% increase to $1.55 per share, and it's not too late for you to benefit. If you get in on the stock by Jan. 16 of next year, you'll collect the payment a month later.
AbbVie's dividend growth may be a bit slower these days than it was when top drug Humira's sales were on the rise. With the immunology blockbuster facing competition, AbbVie's earnings have declined, and that's made management a bit more cautious. This is a good thing because it means AbbVie is keeping payments at a sustainable level. And in the most recent earnings call, AbbVie said it plans to "step up" dividend growth once earnings strength returns.
ABBV Free Cash Flow data by YCharts
There's reason to believe earnings strength will return, thanks to AbbVie's two newer immunology drugs, Rinvoq and Skyrizi. Together, they could deliver revenue of more than $21 billion by 2027, surpassing Humira's peak levels, and continue to grow well into the next decade. In the most recent quarter, Rinvoq and Skyrizi revenues each climbed more than 50%.
AbbVie also has a variety of other top-selling products in areas from neuroscience to aesthetics. So, if you buy shares of this drugmaker, you're likely to benefit from a new phase of earnings growth and passive income as far as the eye can see.
2. Johnson & Johnson
Johnson & Johnson (JNJ -1.04%) also has an impressive dividend track record, easily making the list of Dividend Kings. It's lifted the payment for more than 60 years, and today it offers you $4.76 per share annually at a dividend yield of 3.17%. The yield is higher than the industry average of 2.15%, according to NYU Stern Business School data.
Considering J&J's $15 billion in free cash flow, there's reason to be optimistic it will continue lifting payments.
JNJ Free Cash Flow data by YCharts
Like AbbVie, J&J may be entering a new phase of growth. The healthcare giant recently spun off its consumer health unit to focus on its higher-growth businesses of pharmaceuticals and medtech. In the most recent quarter, the company reported operational growth of 9% (excluding its coronavirus vaccine).
The consumer health spinoff left J&J with more than $13 billion in proceeds, which could be used to buy a company or platform or further boost internal growth. J&J is also confident about meeting its goal of $57 billion in pharmaceuticals revenue in 2025, led by several blockbuster drugs including immunology drug Tremfya and oncology drug Darzalex. And though top immunology drug Stelara is set to face competition, that won't happen in the U.S. until 2025 -- giving that product time to help J&J toward the goal.
Finally, J&J has more than 90 candidates in the pipeline, so there's plenty of potential for growth from 2025 onward.
All this means J&J shareholders should not only benefit from growth in passive income in the coming years -- but also possibly from share price performance as J&J's focus on its most promising businesses pays off.
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
