When it comes to finding stocks that pay a dividend, it's important for investors to focus on companies with strong business fundamentals. This helps ensure the dividend will be around for years to come. A good place to look for dividend stocks is the list of Dividend Kings. This title is bestowed upon any company that has increased its dividend for at least 50 consecutive years.
As of early 2022, only 39 stocks qualified as Dividend Kings. Among those, there are three companies I think are great investments for the long haul. Johnson & Johnson (JNJ -1.15%) has increased its dividend for 59 consecutive years while Abbott Labs (ABT -0.03%) and AbbVie (ABBV -0.30%) have done so for 50. However, their long-standing dividends are not the only reasons to add these stocks to your portfolio.
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1. Johnson & Johnson
Johnson & Johnson (J&J) is one of the oldest companies in the healthcare space, incorporated in 1887. While the company currently operates in three segments, it plans to spin off its consumer health business into its own publicly traded company, leaving the pharmaceutical and medical device segments with the original company. These remaining segments accounted for approximately 84% of total revenue in 2021, so the bulk of J&J's sales remain with the company.
In 2021, J&J grew its revenue by 14% and net income by 42% compared to 2020. The bulk of the revenue came from the pharmaceutical division, which has several drugs on the market that treat a variety of diseases. However, the medical devices segment had the highest year-over-year sales growth due to the uptick in medical procedures after elective surgeries were largely put on hold during the height of the pandemic.
Management sees continued growth for the pharmaceutical business over the next few years, targeting $60 billion in sales by 2025, which would be a 15% increase over 2021 revenue.
The company generated $20 billion in free cash flow in 2021, easily providing enough cash to cover its dividend and raise it again to remain a Dividend King. J&J is one of those stable, foundational stocks that can anchor any portfolio while its dividend yields a healthy 2.4%.
2. Abbott Labs
Not quite as old as Johnson & Johnson, Abbott Labs was incorporated in 1900. It develops, manufactures, and sells a broad range of pharmaceuticals, diagnostic products, nutritional products, and medical devices. Abbott was in the spotlight recently because it is a provider of rapid COVID-19 tests, but the company also produces many well-known consumer products such as Similac baby formula and Ensure protein drinks.
2021 saw strong results for Abbott, with revenue increasing 25% compared to 2020. This growth was driven significantly by the diagnostics segment, which grew 45% year over year and includes the COVID-testing revenue. While the company expects this COVID-related revenue to remain strong in the near future, it's important to note that excluding COVID-related sales, the diagnostics segment still grew revenue by 13% in 2021.
With a dividend yield of 1.5%, Abbott slightly outpaces the S&P 500's 1.4% yield. Perhaps more importantly for potential investors, Abbott currently trades at five times sales, near its mid-2020 multiple. This provides an attractive entry point for potential investors.
3. AbbVie
AbbVie gets to claim its Dividend King status because of its history as part of Abbott Labs. That said, the company has continued to raise its dividend annually since it was spun off from Abbott in 2013. Focusing on immunology, hematologic oncology, neuroscience, aesthetics, and eye care, AbbVie has had a successful run as a public company, outpacing Abbott by approximately 67% since the spinoff.
In 2021, AbbVie increased revenue by 23% and adjusted earnings per share (EPS) by 20%. This was driven by AbbVie's blockbuster drug Humira which brought in over $20 billion in sales in 2021. Unfortunately, AbbVie will face competition for Humira as it loses its patent exclusivity in 2023. Luckily, the recent acquisition of Allergan brings Botox into the fold. Botox cosmetic revenue grew 98% in 2021, and Botox therapeutic revenue increased 75%.
AbbVie's price-to-sales ratio is 5, similar to the multiple for Johnson & Johnson and Abbott Labs. However, unlike those two, it's been trending upward and is now the highest it's been since mid-2018. On the other hand, over the past three years, AbbVie has been growing revenue at the fastest pace of the three, making the current valuation seem more like a steal than a concern.
