Finding a good dividend stock can be a challenge, as investors need to consider more than just the size of a stock's payouts. The company's stability, its ability to continue paying the dividend, and whether it's likely to increase its dividend payments over time are some other considerations that investors also need to take into account when selecting an income stock.

Although Johnson & Johnson (NYSE:JNJ) may not be having the best year, constantly finding itself in the news for all the wrong reasons, the stock ticks a lot of those boxes off and could be an appealing option for dividend investors. Let's take a look to see if it belongs in your portfolio today.

Dividend has been among the best of the best

At first glance, J&J's dividend of 2.6% may not warrant much enthusiasm. There are plenty of higher-yielding dividend stocks out there that investors can choose from if their main priority is a good payout. Where J&J's dividend stands out from the pack is in its stability and growth.

Dividends written over top of a piggy bank.

Image Source: Getty Images.

When the company announced back in April that it would be raising its quarterly dividend from $0.90 per share to $0.95, an increase of 5.6%, it was the 57th straight year that J&J had boosted its payout.  Amid recessions big and small, varying company performances, the stock has continued to not only pay dividends but increase them as well. It falls into the category of a Dividend Aristocrat, having hiked its payments for at least 25 straight years, and it has one of the longest dividend-growth streaks going.

The reason that matters for investors is that if you invest $10,000 in J&J's stock today, you're earning $260 a year. However, if the company continues growing its dividend at a rate of 5.6% every year, here's how much that dividend can grow to be 10, 20, and 30 years from now:

Year

Dividend

% of Original Investment

10

$448.35

4.48%

20

$773.13

7.73%

30

$1,333.19

13.33%

The longer you hold J&J stock, the more potential there is for the dividend to rise in value. This is assuming that the company will continue raising its payouts at a consistent rate, which is no guarantee. There's also no obligation for J&J to raise its payouts or even for the dividend payments to remain the same. Companies can cut or even eliminate dividend payments with no warning whatsoever.

Can it continue paying its dividend?

A good way to tell if a stock's dividend is sustainable is by looking at its statement of cash flow. If it's generating more free cash flow than it is paying out cash in dividends, that suggests the payments could be in good shape, at least for now.

Over the trailing twelve months, J&J's free cash flow has totaled $19.7 billion. During the same period, the company has paid out $9.8 billion in dividends, or about half of its free cash flow. There definitely looks to be ample room there for the company to not only continue paying its dividend, but to continue increasing it as well.

The stock isn't without its risks

The problem for J&J is that the company is facing a lot of legal uncertainty today. In October, jurors hit J&J with an $8 billion fine, and in November the company lost a class action lawsuit in Australia relating to faulty transvaginal mesh. Its talc baby powder issue isn't going away anytime soon, either.

If these issues keep coming up and the company continues to incur big fines and expenses, it could pose a risk to the stock's dividend. While it's not a scenario that looks imminent today, it's a risk that investors should be aware of and take into consideration before buying shares of J&J.

Why J&J's still a good choice for income investors

J&J is facing a lot of bad press these days, but while there is some risk surrounding the stock, it shouldn't be enough to deter investors from what's still a good and stable company to invest in. The company still has strong financials and the resources capable of getting past these issues and continuing to be a top healthcare stock in the industry.

No stock is going to be entirely risk-free, and for the dividend income that J&J offers and the positive results it continues to generate, it's one of the better stocks that income investors can buy today.