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2 Dividend Stocks I'd Buy Right Now

By Sushree Mohanty – Oct 2, 2021 at 7:09AM

Key Points

  • A higher dividend yield alone isn’t enough to choose a dividend stock.
  • Johnson & Johnson is a beast among dividend stocks.
  • Innovative Industrial offers investors more than just dividends.

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To enjoy a regular, stable income, dividend stocks are the way to go.

Achieving the full benefits of investing will require time and patience, as this is a long-term game. Stock markets and risk go hand in hand. Therefore, if investors want regular, stable income, dividend stocks are the safe-haven option.

Among the dividend stocks, my favorites are healthcare/consumer giant Johnson & Johnson (JNJ 0.10%) and cannabis-related real estate investment trust (REIT) Innovative Industrial Properties (IIPR 1.09%). While both stocks look attractive for their dividend yield, that alone shouldn't be the basis for choosing a dividend stock. Let's take a look at what other factors make these two the best dividend stocks to own right now.

Two smiling people sitting and counting money.

Image source: Getty Images.

Johnson & Johnson is a guarantee for stable, consistent dividends

Besides being an admired name in the consumer space, Johnson & Johnson also holds a reputation of being a Dividend King (a company that has increased dividends for at least 50 years in a row). It has introduced some of the most popular products, such as Listerine, Neutrogena, and Benadryl, to name a few, around the world.

Its strong financials have helped the company pay dividends consistently for 59 years. The company continues to grow, so investors can be assured dividend payments won't be stopping anytime soon. It recently increased its quarterly dividend again by 5% to $1.06 per share. Its dividend payout ratio (based on cash flow) of 38.9% reveals the company is stable enough to continue paying dividends to its shareholders. (Payout ratio helps determine if a company's dividend payments are sustainable; the lower, the better.)

Johnson & Johnson's strength lies in its diversified business, comprised of three segments: consumer health, pharmaceuticals, and medical devices.

The company had another stellar second quarter wherein it saw double-digit growth in all three of its segments, with a tremendous year-over-year increase of 63% in the medical device segment. The segment revived with a market recovery for medical devices and elective procedures that were otherwise deferred during the pandemic. A slow recovery in the U.S. market contributed to 50% of total sales during the quarter. 

Management expects fiscal 2021's adjusted operational sales to grow year over year by 12.5% to 13.5%, and adjusted diluted earnings per share to jump 18.4% to 19.6% from the year-ago period to $9.50 to $9.60. This indicates another successful year and a probable hike in dividend.

Innovative Industrial Properties has other perks besides being a dividend stock

Investors will get many more benefits by investing in Innovative in addition to receiving dividends. Its consistency in dividend payments can be credited to its excellent financial performance so far. It is a REIT that provides real estate capital to cannabis companies. The illegality status of the drug prevents pot companies from setting up larger production facilities. So Innovative helps them by buying these properties and leasing them back to cannabis companies, thus bringing in rental revenue (the only source of revenue for the company). Total revenue jumped 101% year over year to $49 million for the recent quarter ended June 30; and profit more than doubled, climbing to $29 million from $13 million in the year-ago period. 

Being a REIT, Innovative is legally bound to pay 90% of its taxable income back to shareholders. It has been doing this successfully, which is evident from its rising adjusted funds from operations, or AFFO, that grew 105% year over year to $43 million in its Q2. AFFO determines the profits of a REIT that can be paid as dividends (similar to net earnings for a non-REIT). This surge in AFFO allowed Innovative to make another 32% year-over-year hike in its quarterly dividend to $1.40 per share in Q2. This also marked the 11th dividend hike for the company since its initial public offering in 2016. 

Innovative's business model's success is evident from the fact that it now owns 73 properties in 18 states totaling 6.8 million square feet of space. Also, 100% of its properties are leased out by cannabis companies. Thus, besides dividends, Innovative will also give investors (who are hesitant about investing in pot stocks) indirect access to the sector. Some popular U.S. cannabis players like Cresco Labs, Trulieve CannabisCuraleaf Holdings, and Green Thumb Industries are Innovative's tenants. These companies are thriving in the business right now, with solid expansion plans that allow me to believe Innovative has a bright future ahead.

Safe-haven bets

Both Innovative and Johnson & Johnson do not offer very high dividend yields, at 2.6% and 2.48%, respectively, but they're better than the S&P 500's average of 1.3%. However, a dividend yield is not all that matters. The fact that both businesses are stable with high growth prospects gives me faith that their dividends will keep growing as well.

Not being directly associated with the cannabis sector prevents Innovative from any sector-related risks. But with state legalization ramping up, cannabis companies' expansion plans will skyrocket and Innovative will continue to grow.

Johnson & Johnson's pharmaceuticals segment carries a little risk (most of its drugs might not be successful). However, the company is not dependent on just one product or one segment to generate revenue. In fact, most of its products are non-cyclical, which keeps it safe in a volatile market. Its involvement and success with its COVID-19 vaccine is also an added perk. The company expects around $2.5 billion in 2021 sales from its vaccine, which could be close to 2.7% of its total sales (based on its current guidance).

Analysts predict 16% and 10% upside for Johnson & Johnson's and Innovative's stocks for the next 12 months.

Both stocks are trading 10% and 8% off their 52-week highs. This dip makes it the right time for investors to buy and hold these two excellent dividend picks for the long term.

Sushree Mohanty has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Cresco Labs Inc., Green Thumb Industries, Innovative Industrial Properties, and Trulieve Cannabis Corp. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Innovative Industrial Properties Stock Quote
Innovative Industrial Properties
IIPR
$122.53 (1.09%) $1.32
Johnson & Johnson Stock Quote
Johnson & Johnson
JNJ
$178.17 (0.10%) $0.17
Trulieve Cannabis Stock Quote
Trulieve Cannabis
TCNNF
$12.76 (-1.01%) $0.13
Curaleaf Stock Quote
Curaleaf
CURLF
$6.57 (-0.76%) $0.05
Cresco Labs Inc. Stock Quote
Cresco Labs Inc.
CRLBF
$3.29 (-1.73%) $0.06
Green Thumb Industries Stock Quote
Green Thumb Industries
GTBIF
$12.98 (-0.15%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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