After a couple of volatile years for flashy growth stocks, investors are once again turning toward ones that pay growing dividends. It's not hard to understand why. Businesses that commit to distributing a share of their bottom line with shareholders regularly outperform the overall market over time.
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During the 50-year period that ended in 2022, companies in the benchmark S&P 500 index that began or grew their dividend payout delivered an average annual return of 10.24%. The average non-dividend-paying stock in the same index fell by 0.6% annually, according to Ned Davis Research and Hartford Funds.
These three dividend stocks have a long history of making and raising payments. Read on to see how they could outperform their index peers and provide you with a growing income stream.
1. Johnson & Johnson
If you're looking for a reliable dividend stock, it's hard to do better than Johnson & Johnson (JNJ 0.67%), or J&J. This April, the healthcare conglomerate raised its payout for the 61st year in a row. At recent prices, it offers a 3.1% yield, which is much better than the 1.7% yield that the average stock in the S&P 500 offers right now.
In May, J&J spun out its consumer health segment as a new company called Kenvue. Now that Johnson & Johnson is purely a pharmaceutical and medical device company, investors can look forward to faster dividend raises than they're used to. J&J recently reported first-quarter medical technology sales that jumped 11% higher year over year, once adjusted for the effects of a stronger dollar, thanks in part to the acquisition of Abiomed for $16.8 billion late last year.
Sales of some of J&J's older treatments, such as Remicade, are falling now that they've lost market exclusivity. Despite the challenge, operational pharmaceutical sales climbed 7.2% year over year in Q1 thanks to the strong uptake of relatively new cancer drugs like Darzalex and Erleada.
2. Medtronic
If volatile pharmaceutical sales make you nervous, consider buying shares of Medtronic (MDT 0.14%). Its dividend has grown 146% over the past decade and at recent prices, it offers a 3.4% yield.
You can hardly open your eyes in a hospital room without seeing at least a few of this company's devices. Economies of scale help Medtronic compete fiercely with smaller manufacturers of everyday devices, but this company is much more than just a giant manufacturer.
Since 2016, Medtronic has spent more than $2 billion annually on research and development with plenty to show for it. During its fiscal Q4, which ended April 28, the company earned marketing approval in Europe for a new vascular mapping catheter called Affera and a new pacemaker called Aurora. Also during its fiscal Q4, the U.S. Food and Drug Administration (FDA) approved the MiniMed 780G insulin pump and its new sensor.
In the years ahead, Medtronic's robotic-assisted surgery system, Hugo, could be a big growth driver. Urologic procedures are some of the most commonly performed with robotic assistance, and a clinical trial testing Hugo as a new option got started last December.
3. CVS Health
CVS Health (CVS 1.15%) is most famous for its chain of around 9,000 retail pharmacies and the ridiculously long receipts they give customers. Dividend investors love the stock because it's raised its payout a whopping 169% over the past decade.
At recent prices, CVS Health offers a 3.6% yield, and investors can expect it to grow along with overall spending on healthcare in the U.S. The national health expenditure reached $4.3 trillion in 2021, and it's expected to grow by 5.3% annually through 2030.
In 2018, CVS Health completed a $78 billion acquisition of Aetna, a health insurance benefits manager that collects monthly premiums from around 37 million people. Years before that, it acquired a pharmacy benefits-management business that is now America's largest with over 110 million plan members.
Providing many of the benefits it's paid to manage is a lucrative position to be in, and CVS Health is going to provide a lot more primary care benefits from now on. In March, it acquired Signify Health and its network of over 10,000 clinicians. In May, it acquired Oak Street Health, a value-based primary care provider with 169 medical centers spread through the country.
CVS Health's operations generated an impressive $17.4 billion in free cash flow. The company needed just 17% of this sum to meet its dividend obligation, which leaves plenty of room for dramatic dividend raises in the years to come.
