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If You Like Dividends, You Should Love These 3 Stocks

By James Brumley – Sep 24, 2021 at 8:52AM

Key Points

  • The defense contracting business is more consistent than big-ticket weaponry headlines would imply.
  • Johnson & Johnson is much more than baby shampoo and over-the-counter consumer goods.
  • Regardless of its price, the need for natural gas is consistent from one year to the next.

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Not every company is what you might think it is. Many make continued dividend payments based on what you don't readily see.

Are you looking for reliable investment income? Despite still-frothy valuations in an environment with ultra-low interest rates, there are still some reasonably priced stocks sporting above-average yields you can count on. To find them, you just might have to tiptoe into a name or sector you've typically -- for whatever reason -- not considered before.

Here are three dividend stocks that any income-seeking investor should want to consider adding to their portfolio.

A roll of $100 bills sitting next to a small sign with the word "dividends."

Image source: Getty Images.

1. Johnson & Johnson

Dividend yield: 2.6%

Sure, Johnson & Johnson (JNJ 0.16%) may appear to be a stodgy, 135-year-old company stuck in its own past, with low-growth, basic products like Tylenol, Benadryl, and Band-Aid bandages. But there's a whole other side to this company that you may not realize is Johnson & Johnson.

More than half of its revenue is actually driven by prescription pharmaceuticals, including blockbuster drugs like Remicade (for arthritis), Stelara (which treats both arthritis and plaque psoriasis), and cancer-fighting Imbruvica. Around one-quarter of its top line comes from the sale of medical devices, most of which aren't branded as Johnson & Johnson products.

J&J not only manages a diverse portfolio of products, but with three distinct business lines, the company can innovate without risking a complete implosion of its profitability.

Johnson & Johnson has consistently turned a full-year profit for decades despite a couple of huge, one-time charges. Indeed, earnings have grown steadily for the healthcare company. Last year's COVID-crimped, after-tax bottom line of $21.4 billion is roughly four times what Johnson & Johnson was earning 20 years ago. There are also fewer outstanding shares now than there were then. More profits divvied up among a shrinking number of shares of course means even greater per-share profitability. It also means firm fiscal support of the stock's dividend, which has increased every year since 1962.


Dividend yield: 7.1%

While Johnson & Johnson is a household name, ONEOK (OKE 0.45%) is anything but. However, there's a good chance your household depends on ONEOK's singular but critical service.

ONEOK delivers natural gas and natural gas liquids through 40,000 miles of pipelines from North Dakota to Texas. The energy company handles more than one-tenth of the country's natural gas production.

On the surface, it seems like a risky business -- particularly of late. The prices of natural gas and crude oil tend to be closely tethered, and oil's prices have been all over the map for the past decade or so. Drillers, explorers, and refiners have been put through the volatility wringer.

But, gas and oil prices aren't quite as closely linked as the paragraph above implies. In fact, the pipeline business itself isn't greatly impacted by swings in oil and gas prices. ONEOK is more of a tollbooth operator than anything else, collecting a fee for processing natural gas regardless of the price agreed upon by its ultimate buyer and seller. That's how its operating income has slowly but steadily grown from $940 million in 2011 to last year's $1.36 billion, pushing through 2015's price implosion with relative ease. ONEOK still managed to earn just under $1 billion in that turbulent year. While natural gas's price may have changed, consumers and corporations never stopped needing the product. They just dealt with its higher price since they had no other choice. 

There's no growth that could be considered "thrilling" with this company, but the tollbooth-type of business is perfectly suited to fund recurring dividends.

Naval personnel aboard the amphibious assault ship USS America prepare an F35B fighter jet for flight.

Naval personnel aboard the amphibious assault ship USS America prepare an F35B fighter jet for flight. Image source: Lockheed Martin.

3. Lockheed Martin

Dividend yield: 3.1%

Finally, add aerospace and defense contractor Lockheed Martin (LMT -0.45%) to your list of dividend stocks to consider, especially while its yield is a healthy 3.1%.

It would be easy to assume companies operating heavily in the defense industry face some volatility because so much of their revenue is subject to the whims of changing Department of Defense and White House priorities, but also the whims of agencies like NASA as well as the aircraft industry. All these groups are big-ticket spenders, but big orders can easily go to a defense contractor's competitors. Program cancellations like the Pentagon's recent cancellation of the contentious JEDI cloud contract are also a major risk that can disrupt defense contractors' bottom lines.

But compared to other segments of the industrial sector, defense contracts end up being rather reliable and consistent from year to year.

That's mostly due to the back-end nature of defense contracting that you rarely see. Lockheed Martin may make the F-35 jet fighter, for instance, but there's more to its deal with the Department of Defense than simply selling airplanes. The military also needs those jets maintained. In this vein, the Department of Defense and Lockheed Martin just inked a multi-billion-dollar deal that funds the continued maintenance of more than 3,000 aircraft through 2023.

Lockheed Martin also offers radar systems, weapons-management platforms, cybersecurity tools, logistics, and training services as well. Most of these revenue-bearing offerings never make headlines, but the military desperately needs them just the same.

The end result is a company that has managed to turn a full-year profit every year for decades and has increased its dividend payout every year for the past 19 years. Lockheed Martin is just six years away from earning the title of Dividend Aristocrat, which suggests this stock is a particularly good dividend bet now.

James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson, Lockheed Martin, and ONEOK. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Lockheed Martin Stock Quote
Lockheed Martin
$482.99 (-0.45%) $-2.20
Johnson & Johnson Stock Quote
Johnson & Johnson
$178.28 (0.16%) $0.28
ONEOK Stock Quote
$67.22 (0.45%) $0.30

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