Finding a safe dividend stock to buy for the long term is challenging for two reasons. First, companies can only pay dividends if they have ample cash flow. And second, established competitors with a steady business face the risk of getting disrupted by new upstarts, and that risk rises over time.
But there are still a few stocks with the ability to be lucrative and very low-risk. Generally, the companies in question have a ton of different products that will never go out of style. Let's examine three of the largest businesses in healthcare that fit this bill.
1. Becton, Dickinson
Becton, Dickinson (NYSE:BDX) is a rock-solid stock because it's one of the most important suppliers in the healthcare sector. BD serves the market for everything from conical test tubes used for research to surgical supplies and nursing home hardware. No matter what's going on in the economy, there's no single event or trend that could threaten all of its highly diversified revenue sources at once.
Even the coronavirus bounced right off this business. Since the pandemic, the company is flourishing even more than usual, with quarterly earnings up 63.4% year over year as of Q2. Of course, a significant portion of those gains were driven by its white-hot sales of coronavirus diagnostics, not to mention its collaborations with vaccine manufacturers.
Still, BD would probably have rewarded its investors even without revenue from coronavirus products. Over the past five years, its annual free cash flows increased by 46.25%, and over the past decade, its cash holdings have increased by more than 217%. So BD's dividend is quite safe from disruption, though its current dividend yield of 1.35% (about equal to the S&P 500's current average payout) isn't particularly mouthwatering.
2. Abbott Laboratories
Like BD, Abbott Laboratories (NYSE:ABT) sells a huge number of different products that the healthcare system needs to keep working. Whether it's cardiac stents for heart surgery, liquid nutrition solutions, glucose monitors, or coronavirus diagnostic tests, Abbott's offerings are in demand. And they also have a knack for being timely and well-placed in the market.
According to Abbott's second-quarter earnings report, revenue from its medical device sales rose by 45.1% year over year. It also pocketed a cool $1.3 billion from sales of its coronavirus diagnostic tests in Q2, which (obviously) it developed on very short notice early last year. So don't assume that the company's size makes it less nimble when it comes to tackling emerging opportunities.
Nor is it a stranger to consistently strong performance over vast periods. In June, Abbott announced that it was paying out its 390th consecutive quarterly dividend. And for the past 49 years and running, management has opted to increase that dividend at the end of the year. When it comes to being all-in on maintaining and growing a dividend, few other businesses compare. Of course, you aren't going to get rich off of Abbott's dividend yield of 1.51%, but that's not the point. You'll be able to count on the company's payout for years to come, and you can probably rely on it slowly increasing over time, too.
3. Johnson & Johnson
Johnson & Johnson (NYSE:JNJ) makes everything from pharmaceuticals to medical devices and even consumer health products like shampoo. And this household name isn't a small-time provider -- in Q2 alone, it made $23.3 billion in sales. Between its many business units and consistent management over time, it has a reputation for being a safe investment.
Part of the reason why investors tend to have a lot of confidence in the company is its enduring financial strength over time. Over the past decade, its annual free cash flow has risen by more than 77%. That's a weighty piece of evidence in favor of its long-standing efficiency and prudent investment in the right areas for growth.
Rising cash flows are also how the company affords rewarding its investors. Johnson & Johnson's current dividend yield of 2.52% is a bit meatier than the payouts from BD and Abbott Labs. And the business is just as devoted to raising its dividend every year as Abbott has been, so holding on to the stock for decades is a smart move.
Investors should still be aware of some of the risks that come with investing in this consumer health company. Over the last few years, J&J has been served with a slew of ongoing lawsuits, with plaintiffs claiming wrongdoing regarding everything from its baby powder products (said to contain asbestos that causes cancer) to its role in allegedly worsening the opioid abuse epidemic in the U.S., not to mention the undisclosed side effects of its antipsychotic medication, Risperdal. Despite paying out billions in settlements related to these cases, the company still has plenty of cash, and it isn't significantly threatened. Investors shouldn't be too surprised if similar issues crop up in the future, causing the stock price to (briefly) tumble. But this powerhouse has shown it can weather such storms.