Wednesday, January 4, 2023

🏀 A Slam-Dunk Dividend

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AN OXFORD CLUB PUBLICATION

Wealthy Retirement

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A Dividend Hike That's a Slam Dunk

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

There are few companies out there with an unblemished track record of annual dividend increases that also have pristine financials to ensure that the dividend raises will continue.

Johnson & Johnson (NYSE: JNJ) is unquestionably one of them.

The company has raised its dividend annually since it began paying one in 1972. Last year marked the 50th year in a row that the drug and consumer products company lifted the dividend.

That's what you call an impressive track record.

Chart: Johnson & Johnson Dividend per Share
 

Okay, so the dividend-paying history is superb. But so is its cash flow growth.

In 2021, the maker of Band-Aids, medical devices and cancer-fighting drugs, along with many other products, generated $19.8 million in free cash flow. That figure is expected to grow to $22.9 billion when Johnson & Johnson reports full-year 2022 results and rocket to $26.7 billion this year.

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The company is forecast to have paid out $11.5 billion in dividends in 2022, just 50% of its free cash flow. If the 2023 free cash flow and dividends paid projections are correct, this year, the company's payout ratio will dip to 45%.

I like to see a company's payout ratio below 75%. So 45% is quite low and suggests the company has lots of room to raise the dividend even if free cash flow isn't as strong as predicted.

Johnson & Johnson's dividend is as safe as a bet that most New Year's resolutions will be forgotten by February.

Dividend Safety Rating: A

Dividend Grade Guide
 

If you have a stock whose dividend safety you'd like me to analyze, leave the ticker symbol in the comments section. And don't forget to search the site to see whether I've written about your favorite stock recently. Just click on the magnifying glass in the top right corner, type in the company's name and hit enter.

Good investing,

Marc

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