There are few guarantees in life. But investing in quality dividend-paying stocks will just have to do for income investors.
An efficient way to measure quality among dividend stocks is by how many consecutive years the payout has been raised. With at least 50 consecutive years of dividend growth, Dividend Kings are the crème de la crème. Fifty-plus consecutive years means that Dividend Kings raised their dividends paid to shareholders through numerous recessions, stock market crashes, global pandemics, and military conflicts. Here are two Dividend Kings that are growing steadily and are reasonably valued to consider buying for 2023 and beyond.
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1. Johnson & Johnson: The lengthiest dividend growth streak in all of healthcare
Johnson & Johnson (JNJ 0.82%) is a company that needs no introduction, but here's one anyway: With corporate roots dating back to the late 19th century and over 140,000 employees throughout the world, J&J is a world-class business. In fact, its $445 billion market capitalization makes J&J the largest pharmaceutical company on the planet.
Thirteen of the company's medicines and its COVID-19 vaccine are each expected to report more than $1 billion in annual sales when J&J reports full-year 2022 earnings results on Jan. 24. As one of the most successful companies in history, the drugmaker couldn't really be blamed if it were to get complacent.
But with 107 projects in differing stages of clinical development as of Oct. 18, J&J isn't doing that at all. This is why analysts expect mid-single-digit annual earnings growth from the company over the next five years. The company should also benefit from a once-in-a-decade opportunity later this year when J&J spins off one of its slower-growing segments. The main company will focus on developing new medical devices and pharmaceuticals and it will retain the J&J name. The other will focus on consumer health goods like over-the-counter medicines and brands like Band-Aid and it will be called Kenvue.
The spinoff and the encouraging growth forecast, coupled with a dividend payout ratio that will clock in at approximately 44% in 2022, bodes well for future dividend growth. That should allow J&J to build on its 60-year dividend growth streak -- the most established streak in the entire healthcare sector -- moving forward. Income investors will also be pleased to learn that the stock's 2.7% dividend yield is considerably higher than the S&P 500 index's average 1.7% yield.
And to top it all off, shares of J&J can be snatched up at a forward price-to-earnings (P/E) ratio of 16.4. This is slightly below the S&P 500 healthcare sector average forward P/E ratio of 17.2, which makes J&J a buy for dividend growth investors.
2. Abbott Laboratories: An outstanding healthcare business
Like J&J, Abbott Laboratories (ABT -0.20%) is a company that is well-known around the world, with market-leading positions in numerous areas of healthcare. Abbott's most prominent products include the continuous glucose monitor FreeStyle Libre, the nutritional shake Ensure, and the BinaxNOW COVID-19 rapid test.
The company's 130-plus years in business helped it to foster a culture of innovation. Because of this factor, analysts anticipate that Abbott's earnings will compound at 8.3% annually over the next five years.
Yield-hungry investors will prize the stock's market-topping 1.8% dividend yield. Investors can also rest assured that the dividend is sustainable, since it is projected that Abbott's dividend payout ratio will be just 36% in 2022. This should provide the company with the flexibility to extend its dividend growth streak well past the current mark of 50 years.
The cherry on top is that the market doesn't seem to be giving Abbott the respect that it deserves. The stock is trading at a forward P/E ratio of 25.3, which is a tad lower than the medical devices industry average forward P/E ratio of 25.5. If anything, a Dividend King like Abbott is arguably worthy of at least some premium over its peers. That's what makes it such a compelling buy for investors seeking rising dividend income.
