Are you looking for some solid, recurring income that can help your portfolio grow over the years? Dividend stocks can do just that, especially those that increase their payouts over time. If your dividend payments aren't growing, inflation will start to cut into your real returns. That's why it's important to not just settle for any dividend stock, but one that's likely to raise its payments.
Two great growing dividend stocks you can add to your portfolio are Apple (AAPL +0.33%) and Johnson & Johnson (JNJ +1.98%). Not only are they likely to continue increasing their dividend payments, but there's even a likelihood that their payouts will double.
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1. Apple
Apple has been paying dividends consistently since 2012, after stopping in 1995 in order to reroute its capital towards growth efforts and staving off competition. That's by no means a long track record, but Apple is still attractive to income investors because the company has been increasing its payouts regularly in recent years and is generating more than enough cash to justify future boosts.
The tech giant, known for its iPhones and iPads, generated a whopping $80.7 billion in cash from its day-to-day operations in its most recent fiscal year, for the period ending Sept. 26. The company only spent $14.1 billion on dividend payments during the year but an incredible $72.4 billion on stock repurchases. Apple is an investor-friendly stock that finds ways to reward its shareholders through either dividends or share buybacks, which help drive its share price up.
Apple posted record numbers when it released its fourth-quarter results on Oct. 29, including that revenue of $274.5 billion rose 5.5% from the previous year. The new 5G iPhone signals that it's still innovating, creating new products on a regular basis that will help drive even more sales growth. For investors, that ensures the company's future remains strong, as does the prospect of a continuously growing dividend.
Today, the quarterly dividend is $0.205 a share, which yields 0.7% annually. Although that's well below what the typical S&P 500 stock yields, which is around 2%, investors can earn a higher percentage on their initial investment as the dividend rises. Apple has increased its payout by 58% over the past five years, starting with a quarterly dividend of $0.13 (adjusted for its recent 4-for-1 stock split) back in 2015. That averages out to a compound annual growth rate (CAGR) of 9.5%. If the company were to continue raising its dividend payment at that rate, it would take about eight years for it to double.
And doubling its dividend payments is a realistic possibility given how much cash Apple's generating and how strong the business is today. That's why the stock is an attractive option for income investors.
2. Johnson & Johnson
Unlike Apple, Johnson & Johnson does have a long track record of not just paying but increasing its dividends. Its streak of 58 years of increases is so long that it makes the company a Dividend King, the title for stocks in the exclusive club of those that have raised their payouts for 50 consecutive years or more. With a streak like that, investors can be sure it would take something seismic for Johnson & Johnson to fail to hike its payout. What's impressive is that even after all those increases (and in the early days of the pandemic), its latest wasn't just a modest 1% or 2% bump -- the healthcare company raised it by 6.3% on April 14, 2020.
The company pays its shareholders a quarterly dividend of $1.01 today, which yields 2.7%, higher than both Apple and the average S&P 500 stock. That's also 35% higher than the $0.75 that Johnson & Johnson was paying its shareholders five years ago, averaging a CAGR of 6.1% since then. If the company were to continue raising its payouts at that rate, investors would need to wait about 12 years for their dividend payments to double in value. It's a bit longer than it will take for Apple, but the healthcare stock's payouts are also considerably higher today.
On Oct. 13, Johnson & Johnson released its third-quarter results. Sales of $21.08 billion for the period ending Sept. 27 grew 1.7% and were slightly higher than the $20.2 billion in revenue Wall Street analysts were expecting. Its adjusted per-share profit of $2.20 was even more impressive, smashing the $1.98 that analysts were projecting.
And there's no reason to expect the company is about to slow down.
Its recent $6.5 billion acquisition of Momenta Pharmaceuticals, which makes medicines for rare diseases, will strengthen the company's portfolio and leadership in creating treatments for autoimmune diseases. Johnson & Johnson is also one of many companies working on a vaccine for COVID-19 that, if successful, could generate billions more in revenue.
Solid long-term investments for dividend seekers
Johnson & Johnson and Apple are two buy-and-forget stocks that you can hold in your portfolio for the rest of your life. They're both likely to generate growing dividend payments, and they could also produce some great returns along the way. Year to date, Apple's been the better stock in that category, outperforming the markets and Johnson & Johnson by a wide margin:
Together, both stocks can help diversify your portfolio and generate some growing, recurring income for many years to come. Johnson & Johnson pays a better yield, but Apple is more likely to generate stronger returns due to its aggressive buybacks and because investors are generally more bullish on innovative tech stocks. You probably can't go wrong with putting either one of these stocks in your portfolio today and continuing to hunt for businesses with similar qualities.
