It's a simple fact of life that bills are consistently due every month, quarter, or year. That means if you're going to be able to cover your bills with dividend income, then neither can your dividend stock portfolio take a holiday or vacation.

So how can a retiree, or someone planning for retirement, build a steady income stream to pay their bills?

A great way to construct a reliable income portfolio is by purchasing only the highest-quality dividend stocks, measured by a company's consecutive years of dividend increases and the direction of its earnings per share (EPS) growth over the years.

I believe diversified healthcare giant Johnson & Johnson (JNJ -1.73%) could be a great fit in an income portfolio. Let find out why, and also see whether its stock is currently a buy.

A doctor and patient discussing during an appointment.

Image source: Getty Images.

An earnings beat and upped guidance

While the New Brunswick, NJ-headquartered company missed analyst estimates for revenue by less than 2% in the third quarter, the stock blew analysts' EPS estimates away.

Johnson & Johnson generated $23.3 billion in revenue during the third quarter, nearly 11% higher compared to the year-ago period.

The company also reported $2.60 in adjusted diluted EPS, a huge 18.2% growth over the year-ago period given its massive size, and an eye-popping 10.6% higher than consensus estimates.   This is nothing short of a testament to J&J's resiliency in the COVID-19-driven pandemic that even caught Wall Street analysts off guard. 

Management increased guidance for the full year that’d equate to revenue growth of 14.2%, and EPS growth of 22%, at the mid-point over last year, a solid growth by any stretch of imagination.   

The largest segment is the most profitable

While J&J's consumer health, pharmaceuticals, and medical devices segments all grew in the third quarter, the pharmaceuticals segment made up 55.7% of the healthcare giant's revenue in the third quarter. In fact, this segment also contributed to 70% of the company's total revenue growth. Increased doctor visits and prescriptions, thanks to higher vaccination rates, drove this segment's revenue 13.8% higher year over year.

What investors, however, may miss is that the pharmaceutical segment also produces the highest net margins for the company. Therefore, it shouldn't be surprising that an uptick in the share of the pharmaceutical segment's revenue from 54.2% in the year-ago period helped propel its adjusted or non-GAAP EPS past analyst estimates. 

Given that J&J's largest segment is also its most profitable one, investors should feel comfortable with its ability to grow as well as add value by returning profits in the form of dividends.

An unrivaled balance sheet

So, Johnson & Johnson appears positioned for solid growth this year, like most other years in its corporate history. But is the company financially strong enough to withstand a downturn in its business?

Well, Johnson & Johnson is the only stock with a flawless AAA credit rating, aside from Microsoft (MSFT 0.35%).

For a better understanding of why Johnson & Johnson boasts a perfect credit rating, let's dig into the stock's interest coverage ratio. For those who are unaware, the interest coverage ratio is calculated by dividing a stock's earnings before interest and taxes (EBIT) by interest expenses. The interest coverage ratio measures a stock's solvency by how many times over that stock can pay its interest costs with EBIT.

Johnson & Johnson's interest coverage ratio through the first nine months of this year was a jaw-dropping 217.1 ($18.02 billion in EBIT/$83 million in interest expenses). This means that Johnson & Johnson's EBIT would need to collapse more than 99% before the company would be insolvent and unable to pay its interest costs.

Based on Johnson & Johnson's steadily growing earnings and high interest coverage ratio, the stock is highly unlikely to face solvency issues anytime soon.

A wonderful stock at a fair price

Johnson & Johnson has raised its dividend for 59 consecutive years, which puts it in the company of just 30 other stocks that have raised their dividends at least 50 years and are known as Dividend Kings.

Given Johnson & Johnson's share price of $164 and analyst average forward earnings (over the next 12 months) of $10.18, Johnson & Johnson is priced at a forward price-to-earnings ratio of 16.1. This is well below the S&P 500's forward P/E ratio of 21.3. With Johnson & Johnson's elite status as a Dividend King, I would argue that Johnson & Johnson deserves to be trading at least closer to the S&P 500.

While investors wait for the market to award Johnson & Johnson with a higher valuation multiple, they can collect a safe, market-beating 2.6% dividend yield