Dividend Kings are among the most steady corporations on the market. While many businesses don't even last a decade, these companies have survived and thrived and raised their payouts for at least 50 consecutive years to become a member of this elite group.
Still, being a Dividend King does not make a company immune to challenges. Case in point: Abbott Laboratories (ABT -0.65%) and Johnson & Johnson (JNJ -0.69%) are two members of this prominent clique that have lagged the market recently, partly due to company-specific concerns. But these longtime dividend payers remain excellent stocks to buy on the dip. Here's why.
1. Abbott Laboratories
In the first quarter, medical devices specialist Abbott Laboratories saw its sales slump 18.1% to $9.7 billion. That was primarily due to a substantial drop in demand for coronavirus diagnostic products. In the early days of the pandemic, Abbott developed and marketed several COVID-19 tests, which helped its top line stay afloat while pandemic-related factors harmed its core medical devices business.
These dynamics have made Abbott's financial results somewhat unpredictable and volatile in the past couple of years. Further, the company has faced other issues, including safety concerns within its nutrition business. Those factors explain Abbott's poor stock market performance over the past year.
Even so, there is plenty to look forward to today. First, the company's results will soon be free from pandemic-related distortions. In the first quarter, Abbott's organic sales (excluding coronavirus diagnostics) increased by 10% year over year.
Second, Abbott Laboratories boasts plenty of long-term growth opportunities. The company is a proven innovator that has constantly developed new medical devices to address the needs of patients. One of its most promising areas is diabetes care. Abbott is a leader in continuous glucose monitoring thanks to its FreeStyle Libre franchise.
Other aspects of its business, such as structural heart and heart failure, also boast real promise. And thanks to the patents that protect its inventions, Abbott Labs can benefit from them for a long time.
Third, there is the company's dividend. Abbott is on its 51st consecutive year of payout increases. The company won't risk breaking this fantastic run, so expect more yearly dividend hikes. The healthcare giant offers a yield of 2.01%, slightly higher than the S&P 500's 1.66%. And Abbott's 49% cash payout ratio suggests more room for dividend growth.
Despite the company's recent struggles, dividend investors can't go wrong by initiating a position in Abbott, especially while its shares are down.
2. Johnson & Johnson
Johnson & Johnson has performed relatively well in terms of its financial results of late. However, the company is still being held back by a barrage of lawsuits related to its talc powder products. The pharmaceutical giant seems to be moving closer toward a favorable settlement, but this dark cloud is still hovering above the company.
Fortunately, J&J has a strong balance sheet and enough financial resources to manage these legal problems. Elsewhere, the company is evolving. It recently spun off its consumer health division into a stand-alone company, and bolstered its medical device business with an acquisition. These moves should help increase Johnson & Johnson's revenue and earnings growth.
One of the company's greatest strengths is its extensive portfolio of medicines. Physicians don't stop recommending medications during economic downturns, especially not those like cancer drugs Darzalex and Erleada or immunosuppressants Tremfya and Stelara. These are among the many therapies helping Johnson & Johnson grow its revenue.
The company's vast pipeline, which features several dozen programs, usually spits out brand-new approvals or label expansions several times a year. Ditto for J&J's medtech unit, where the company is also an adept innovator and boasts exciting opportunities, including with its robotic-assisted surgery device Ottava. Johnson & Johnson's business should allow it to record consistent revenue and earnings, just as it has in the past.
In the first quarter, the company's top line jumped 5.6% year over year to $24.7 billion, while its adjusted net income declined by almost 1% to $7.1 billion. Johnson & Johnson has raised its payouts for 61 consecutive years, and it should continue doing so for a while, even with a seemingly high 73% cash payout ratio. Johnson & Johnson has the profile of a Dividend King that income-seeking investors can buy and hold forever.
