Dividend-focused investors generally seek out three key things from their investments:

  • Decent current dividend income.
  • A track record of increasing dividends over time.
  • Good reason to believe the company can keep up that trend in the future.

There are only a select few companies that meet that combination of factors, and healthcare titan Johnson & Johnson (JNJ 0.06%) stands out among them. It has a reasonable current yield, a tremendous dividend track record, and some of the best reasons around to believe it can keep up the trend in the future. Read on to find out why Johnson & Johnson just might be a dividend investor's dream company.

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An amazing combination

With the quarterly $1.01-per-share dividend it has kept over the past year, Johnson & Johnson sports an annualized yield of around 2.5%. With 30-year Treasuries yielding closer to 2.3%, investors can get a higher current income level by purchasing Johnson & Johnson's stock versus even the longest-term Treasury bond.

In and of itself, coming in just ahead of bond yields may not seem like much, but the company also sports a 58-year track record of annual increases to that dividend. That puts it in rarefied company with only a small handful of the absolutely strongest businesses around. It also means that investors buying its stock for the income have a good shot of seeing that income increase over time. Contrast that with typical Treasuries that pay out a constant interest rate for their lifetime, then mature.

As if that weren't enough, Johnson & Johnson sports an amazingly solid AAA credit rating. That's the strongest around, and it holds that rating despite the fact that the COVID-19 pandemic threw even the typically resilient healthcare industry for a loop.  

Can the trend really continue?

While Johnson & Johnson's past is stellar, the real question for today's investors is whether the company can continue its trend. After all, since its dividend has been at $1.01 per share per quarter for the past four quarters, it's just about due for its next increase if it plans to keep its streak alive.

On that front, it currently pays out around 73% of its earnings in the form of its dividend . While its dividend is covered by its earnings, that is on the higher end of payout ratios. It indicates that if Johnson & Johnson does increase its dividend, it will likely not be a very large increase. Still, when compared with fixed-income securities like Treasury bonds, any increase simply widens the gap in the company's favor.

Analysts are expecting the company to grow its earnings at around a 5.6% pace over the next five years or so. If that holds true, it could increase its dividend in line with that growth, but it is unlikely to consistently raise its dividend faster than its earnings given its current payout ratio.

Because of its extremely strong balance sheet -- that AAA credit rating is supported by a debt-to-equity ratio below 0.6  -- it can continue to support its dividend even if its business goes temporarily soft. That provides additional reason to believe it might be willing to increase that payment even if it doesn't expect rapid growth over the next few years.

In addition, while 2020 was rough for the healthcare industry due to the COVID-19 pandemic, there's good reason to believe 2021 will be better. Johnson & Johnson itself has a vaccine to help fight the pandemic, and as more people get vaccinated, it is likely they will return more toward normal life. That likely includes addressing more non-emergency healthcare needs, which could be a boon to many of the company's other business lines.

Whether it's because of its balance sheet, its business model, or simply because it can, it is very likely that Johnson & Johnson will continue its trend of rising dividends this year.

What more could you ask for?

High quality dividend stocks have the potential to provide investors a decent and growing income stream. That makes them worth considering as part of a portfolio focused on the long term. When they come with a solid balance sheet and strong underlying business like Johnson & Johnson does, they might very well be a dream stock for income-focused investors.

Just remember that dividends are never guaranteed payments. So whether it's Johnson & Johnson or another dividend-paying company in your portfolio, keep an eye on its fundamentals. If those fundamentals deteriorate and if the company can't recover, that dividend dream may turn into a nightmare. Today's Johnson & Johnson looks very strong, and as long as that strength continues, investors have good reason to believe it will remain a dividend powerhouse.