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Today I'm going to tell you about a dividend stock that, within the next month, I'll be buying into with $4,000 of my own money. I'm so confident that my pick will outperform the market that if I sell any shares within the next three years, I'll donate $100 to charity.

I fully expect today's pick, Johnson & Johnson (NYSE: JNJ  ) , to handily trounce the market because of their sheer size, diversity of products, and solid dividend.

More than just Band-Aids
Before I researched stocks, I thought the only things that Johnson & Johnson made were its signature Band-Aids and Tylenol. After digging into their filings, however, I realized that these household names were just the tip of the iceberg.

Johnson & Johnson operates in three different categories:

  1. Consumer: This covers the aforementioned Band-Aids and Tylenol, as well as several other skin and oral-health products. The consumer division brought in $14.6 billion in total sales in 2010, accounting for about 24% of the company's total revenue.
  2. Pharmaceutical: Medicines like Remicade (immune inflammatory diseases), Procrit (anemia), and Risperdal (anti-psychotic) number among the tongue-twisting treatments bringing in the most money for this division. Taken together, pharmaceuticals represented 36% of all 2010 revenue for the company.
  3. Medical devices and diagnostics: Led by the DePuy franchise of knee and hip replacement products, and the Ethicon line of endo-surgery products, the medical devices category accounted for 40% of total revenues in 2010.

J&J's definitely vulnerable to disruptive competition; MAKO Surgical's (Nasdaq: MAKO  ) line of knee and hip replacement devices spring first to mind. But with so many products under J&J's umbrella, growth in one area can offset a slump in another. On top of that, the company brings in so much money that it could easily buy out potential disruptors such as MAKO.

Dividend strength
So far, my retirement portfolio (more on that later) lacks many heavy dividend payers. I've added Johnson & Johnson to add some of that exposure to my collection of 10 stocks. Here's how the company's dividend stacks up to other medical providers on a number of different metrics.



Payout Ratio

3-yr. Div. Growth Rate

Consecutive dividend increases

Johnson and Johnson




48 years
Abbott (NYSE: ABT  )




38 years
Novartis (NYSE: NVS  )




4 years
Bristol-Myers Squibb (NYSE: BMY  )




1 year
Merck (NYSE: MRK  )




0 years


Though it may lack the sexy growth rates and yields of some of its peers, Johnson and Johnson has shown its commitment to dividends, with 48 consecutive years of increases. Among the companies above, it's also using the least amount of its earnings  to pay those dividends. That's exactly what I'm looking for from this spot in my portfolio.

Foolish takeaway
If this article piqued your interest in dividend stocks, and you're looking for some other dividend ideas, consider 13 names from a free report from The Motley Fool's expert analysts, "13 High-Yielding Stocks to Buy Today," including one named by a senior retail analyst as "the dividend play of a lifetime." Tens of thousands have requested access to this report, and you can download it today at no cost to you. To get instant access to the names of these 13 high yielders, simply click here -- it's free.

This is the last article in a series that I'm writing about my retirement portfolio, which I've dubbed "The Cheesehead Portfolio" in honor of my home state of Wisconsin. If you'd like to see my first nine selections for the portfolio, check them out below.

Fool contributor Brian Stoffel does not yet hold positions in any of the stocks mentioned. He will be buying $4,000 worth of Johnson & Johnson by Aug. 20. The Motley Fool owns shares of Abbott Laboratories and Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of MAKO Surgical, Johnson & Johnson, Novartis, and Abbott Laboratories, and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 01, 2011, at 12:56 PM, ElCid16 wrote:

    Showing a 286% payout ratio for Merck is pretty misleading...

    Maybe show a payout ratio based on OCF or FCF in addition to net income, next time.

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