Johnson & Johnson (NYSE: JNJ) continues to treat its investors like royalty. The healthcare behemoth recently gave them another raise, increasing its dividend payment by 4.8%. That extended its dividend growth streak to an impressive 63 years in a row, keeping it in the elite group of Dividend Kings, companies with 50 or more years of annual dividend increases.
That payout boost pushes the company's forward dividend yield up to 3.4%, more than double the S&P 500's dividend yield of 1.4%. Johnson & Johnson's high-yielding payout is as healthy as they come, making it a super safe option for those desiring to collect passive dividend income.
In peak financial health
Johnson & Johnson has one of the healthiest financial profiles in the world. The healthcare giant has a pristine AAA bond rating. It's one of only two companies in the world with a top credit rating, which is higher than the U.S. government.
The company ended the first quarter of this year with only $13.5 billion of net debt: $38.8 billion of cash against $52.3 billion of debt. While that might sound like a lot, it's a paltry total for a company with a $370 billion market cap. It's also a very manageable amount, considering that Johnson & Johnson produced $3.4 billion in free cash flow during its most recent quarter. That was more than enough cash to cover the company's $3 billion dividend outlay in the period.
Last year, the company produced $20 billion in free cash flow. That was a more than $1.6 billion improvement from 2023 despite higher litigation settlement payments, higher taxes, and eight months of cash flow from its former consumer health business, Kenvue, in 2023. That growing free cash flow easily covered the company's full-year dividend cost of $11.8 billion.
Healthy investments to continue growing
The healthcare company produces significant free cash flow despite investing heavily in research and development (R&D) to discover and test new innovative medicines and medical technologies. Last year, the company poured $17 billion into R&D, accounting for 19.4% of its sales, which kept it as one of the top R&D investors across all industries. Johnson & Johnson has continued to spend heavily on R&D this year, investing $3.2 billion in the first quarter.
It has also deployed significant cash into strategic inorganic growth opportunities. It spent over $14 billion in the first quarter to close its acquisition of Intra-Cellular Therapies. That followed deals last year for Shockwave Medical, $13.1 billion; Ambrx, $1.9 billion; and V-Wave, $600 million. These acquisitions helped fill holes in its pipelines, accelerate innovation, and add new products to its MedTech platform. The company's ability to maintain such a strong balance sheet amid this massive shopping spree showcases its financial might.
Johnson & Johnson's hefty investments position it to continue growing its revenue and earnings. The company's long-term target is to grow its operational sales at a 5% to 7% compound annual rate from 2025 through 2030. That sales growth should drive its earnings and free cash flow higher, enabling the company to continue increasing its dividend.
As bankable a dividend as you'll find
All investments carry varying levels of risk. Johnson & Johnson's high-yielding dividend is at the low end of the spectrum. The healthcare giant produces prodigious free cash flow that easily covers its payout. It also has one of the strongest balance sheets in the world. Those features allow the company to make heavy investments in R&D and acquisitions to drive future growth. That growth should enable Johnson & Johnson to continue reigning supreme as one of the top dividend stocks to own for a safe and secure income stream that rises each year.
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Matt DiLallo has positions in Johnson & Johnson and Kenvue. The Motley Fool has positions in 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.
