Among healthcare stocks, Johnson & Johnson (NYSE:JNJ) can arguably be described as the cream of the crop. It's one of just two publicly traded companies to still bear Standard & Poor's highest credit rating of AAA (Microsoft is the other), and until recently it had a better than 30-year streak of increasing its adjusted EPS on a year-over-year basis. It's also had just nine CEOs since it was founded 121 years ago. It is truly a model of consistency.

The keys to J&J's success

Johnson & Johnson's business structure is one of the key reasons it's so successful. Composed of more than 250 subsidiaries, J&J has the ability to divest slower-growing assets from time to time without disrupting its core operations. Likewise, given that it has so many independent but complementary parts, it can use acquisitions in faster-growing segments to its advantage.

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Johnson & Johnson has three core segments: consumer health products, medical devices, and pharmaceuticals. For the better part of this decade, J&J has been reinvesting heavily in its higher-margin and faster-growing pharma operations. Sales from pharmaceuticals may near 50% of total sales within the next couple of years.

But medical devices and healthcare products play an important role, too. Healthcare products generate predictable cash flow and maintain strong pricing power, while medical devices (namely, J&J's knee and hip replacement segments) look poised to benefit from a rapidly growing number of older Americans. From top to bottom, J&J has been delivering steady growth for a long time.

Johnson & Johnson readies to increase its dividend for a 55th straight year

Ultimately, though, it's Johnson & Johnson's shareholders who have really been privy to the benefits. The company's exceptional cash-flow generation has allowed it to increase its dividend in each of the past 54 years. You can count on two hands the number of publicly traded companies that currently have a longer active streak. This makes J&J quite the attractive income stock for risk-averse investors.

Traditionally, J&J uses the last week or two of April to announce its dividend increases, meaning its once-annual hike is likely right around the corner.

A smiling man laying his head on a pile of cash.

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While nothing is ever "guaranteed" when it comes to the stock market, the chance that J&J chooses not to increase its dividend this year is exceptionally slim. As noted, J&J is regularly generating anywhere from $12 billion to $15 billion in annual free cash flow, and its current annual payout of $3.20 works out to a payout ratio (the amount it's paying in dividends relative to its annual earnings per share) of just 48% based on what it earned in 2016. In other words, J&J's payout ratio is sufficiently low enough, and its business continues to grow enough, that another increase in its dividend seems warranted.

How big of an increase should you expect?

How much might J&J increase its payout next month? While it's impossible to say with any certainty, we can get some general idea by examining its quarterly dividend increases over the previous couple of years.

  • 2010: a 10.2% increase to $0.54.
  • 2011: a 5.6% increase to $0.57.
  • 2012: a 7% increase to $0.61.
  • 2013: an 8.1% increase to $0.66.
  • 2014: a 6.1% increase to $0.70.
  • 2015: a 7.1% increase to $0.75.
  • 2016: a 6.7% increase to $0.80. 
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Johnson & Johnson has a habit of increasing its payout between 5.5% and roughly 7% most years. More importantly, it tends to keep its payout ratio right around the 50% mark. Thus, my best guess is we'll see a $0.05-per-quarter increase (6.2%) to $0.85 per share, which would work out to $3.40 annually, or a 2.7% yield. With Wall Street's consensus calling for around $7 in EPS in 2017, we could see a slightly higher stipend, but a $0.05-per-quarter increase would likely keep its payout more or less on par with where it is now. It would also keep J&J's yield healthfully above the average yield of S&P 500 companies.

As long as J&J can continue to innovate within its pharma pipeline and supplement that pipeline with occasional inorganic opportunities, as well as keep its healthcare and medical device segments from straying off track, it looks to remain a true dividend champion among long-term and risk-averse investors.

Mark your calendar, folks, because we're just a few weeks away from a likely dividend increase. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.