The best dividend stocks have one thing in common: resiliency. They can continue increasing their dividends even in the harshest economic environment. That makes them companies that investors can buy and hold for a lifetime of income.
Microsoft (MSFT 0.37%) and Johnson & Johnson (JNJ -0.69%) pay among the most sustainable dividends in the world. They have elite balance sheets and generate mountains of free cash flow, and they should continue paying dividends for decades to come.
Tech-powered dividend growth
Microsoft's dividend might not stand out at first glance. The tech titan's payout seems small, given its relatively modest dividend yield of around 1%. That's considerably less than the S&P 500's 1.6% yield. However, Microsoft pays out about $18 billion of dividends each year, making it one of the largest dividend payers in the country.
The company also has an excellent track record of increasing its dividend:
MSFT Dividend data by YCharts
The technology company has increased its dividend for 13 straight years. It has grown the payout by nearly 200% over the last 10 years, including 10% in 2022.
Microsoft can easily sustain and grow its dividend in the future. The company generates gargantuan cash flows. It produced $11.2 billion in net cash from operations and $7.2 billion in free cash flow during its most recent fiscal 2023 second quarter. That was more than enough cash to cover its $5.1 billion dividend outlay.
Meanwhile, Microsoft arguably has one of the strongest balance sheets in the world. It has a AAA bond rating, which is higher than the U.S. Government. The company ended last year with $99.5 billion of cash, equivalents, and short-term investments against $44.1 billion of long-term debt. That gives it a financial fortress, allowing it to continue paying dividends while investing in growing its business even in the most brutal market conditions. That makes Microsoft stock an excellent investment for those seeking durable dividend growth over the long term.
An extremely healthy dividend
Johnson & Johnson has proven the resiliency of its dividend over the years. The healthcare giant recently declared its latest dividend payment, increasing it by 5.3% above the prior level. That marks the company's 61st straight year of increasing its payout. It maintained its place in the elite group of Dividend Kings, companies with 50 or more years of growing their dividends.
With its latest raise, Johnson & Johnson pushed up its dividend yield to around 3%. That above-average payout is on a very healthy foundation. Like Microsoft, Johnson & Johnson has AAA-rated credit (they are the only two companies in the world with that elite credit rating). The company ended the first quarter with $33 billion of cash and marketable securities against $53 billion of debt. It can easily afford that debt because it generates lots of free cash flow. In 2022, Johnson & Johnson produced $17 billion of free cash flow, which more than covered its $11.7 billion dividend outlay.
The company uses its post-dividend excess cash to repurchase shares (it recently completed a $5 billion program) and invest in strategic M&A as opportunities arise. The company also invests heavily in R&D to develop new medications and medical technologies. Those growth-related investments should enable the company to expand its free cash flow in the future, positioning it to maintain its exceptional streak of increasing the dividend. That combination of steady growth and an above-average yield makes investing in Johnson & Johnson stock a top option for those seeking a super low-risk income stream.
Extremely dependable dividend stocks
Microsoft and Johnson & Johnson pay two of the most sustainable dividends in the world. They have better credit than the U.S. government and generate lots of cash flow to pay dividends, repurchase shares, and invest in their growth. They can easily sustain and grow their payouts in the future. Those features make them among the top dividend stocks to buy and hold for a lifetime.
