As an investor, don't you love it when one of your stocks declares a fresh dividend?
Well, imagine the wide grin crossing the face of top investor Warren Buffett when his stocks disgorge their payouts. His Berkshire Hathaway is poised to collect a bit over $6 billion in dividends over the next year or so. Two of the Berkshire Hathaway equity holdings helping to produce that pile, Johnson & Johnson (JNJ -0.63%) and Chevron (CVX 1.33%), look particularly attractive just now. Here's why.
1. Johnson & Johnson
There are few things Buffett likes more in a business than for it to have an economic moat. As a company that has straddled the consumer goods and healthcare sectors for decades now, Johnson & Johnson is unique -- for now -- as a powerhouse in both industries.
The two sides of the company's business complement each other quite effectively. The consumer health division is responsible for such tried-and-true medicine cabinet staples as Band-Aids and Tylenol, and these products generate piles of cash on the regular. That income helps support the research and development efforts of the pharmaceutical and medical tech operations.
Not to mention acquisitions. In early November, Johnson & Johnson announced it was buying Abiomed, a growing and profitable manufacturer of heart pumps, for $16.6 billion. This will bolster its medical technology portfolio, adding strength ahead of the planned spin-off of the consumer health business.
After that occurs, shareholders will own stock in both a thriving healthcare company and a solid consumer health business. Both are doing well and should continue to -- pharmaceutical revenue is expected to rise to more than $60 billion by 2025, an impressive 12% over the current level.
Consumer health has been a bit of a sore spot lately. That's due to recent product recalls and the legal cloud hanging over the company. A raft of lawsuits is pending over the alleged presence of cancer-causing asbestos in its formerly talcum-based baby powder.
Considering those share price-lowering headwinds, that Johnson & Johnson division is actually doing fine. Its global non-GAAP (adjusted) sales rose close to 5% year over year in the company's third quarter.
Meanwhile, the company continues to regularly raise its dividend -- in fact, it's one of the stock market's few Dividend Aristocrats. The current quarterly payout is $1.13 per share, which yields a respectable 2.6%.
Chevron is a powerhouse in the energy sector, and not only is it riding high on the recent "oil wave," given its history of prioritizing shareholder payouts, it will surely keep distributing plenty of its profits in the form of dividends.
All things being equal, high oil prices mean better days for companies in the oil industry. Recent global developments -- including but not limited to the war in Ukraine and OPEC's recent production cut -- have pushed oil prices higher and kept them there.
You can bet a veteran player like Chevron knows how to profit handsomely from such a situation. Its recently reported third quarter illustrates this beautifully, as revenue rose to $66.6 billion for a year-over-year improvement of nearly 50% -- an almost unheard-of level for a huge, well-established company in any sector. Net income was even more of a gusher, rising 83% to over $11 billion.
As revenue and profitability go, so goes cash flow. Zooming out a bit, for the first nine months of this year, that line item ballooned to a mighty $29 billion, more than doubling the approximately $14 billion in cash flow it had in the prior-year period.
Oil waves crest sooner or later, so no investor should expect such grand outperformance to continue for Chevron. But as an expert operator used to the cyclical nature of the energy industry, the company is a safe bet to survive the valleys to reach new peaks in the future.
For proof that it can persist and thrive, look no further than that well-funded dividend. Chevron has built up quite the streak of raises, with 35 years and counting of annual increases, making it, too, a Dividend Aristocrat.
At this point, its quarterly payout is $1.42 per share, which at the current share price shakes out to a chunky yield of 3.1%.