If you're looking to build a strong stream of passive income with dividend stocks, there are two ways to go about it. You could aim for stocks that offer a high yield upfront, but dividend payers generally don't offer high yields unless investors are worried about their ability to continue raising their payouts.
Image source: Getty Images.
The stocks on this list take a longer-term approach to income stream building. Although they offer a lower yield upfront, investors can feel confident about steady gains for many years to come. All three of these stocks have decades of consecutive annual dividend raises under their belts.
Johnson & Johnson: A 2.8% yield
Johnson & Johnson (JNJ -0.46%), or J&J as it's more commonly known, is famous for century-old consumer health brands. Since it spun off its consumer health division into a new company called Kenvue earlier this year, its operations are limited to pharmaceuticals and medical technology.
A more agile J&J is good news for investors seeking dividend growth. The company's slimmed-down operation recently reported second-quarter earnings that rose 8.9% year over year. That's especially impressive when you consider that second-quarter pharmaceutical sales were affected by rapidly declining COVID-19 vaccine revenue.
Investors looking for reliable dividend growth will have a hard time beating J&J. This April, it raised its payout for the 61st year in a row. Now that this is purely a med-tech and pharmaceutical business, the next few years of dividend growth could be its fastest in decades.
Medtronic: A 3.1% yield
Medtronic (MDT 0.62%) is the world's largest manufacturer of medical devices, making run-of-the-mill products you can find in any hospital room. Economies of scale make the sale of bulk devices profitable at prices few of its competitors are large enough to match.
For decades, Medtronic has funneled profits from bulk device sales into the development of new technology that drives even more profit growth. This strategy has allowed it to raise its dividend at an annual rate of 9% over the past decade, and it's raised that payout for 46 consecutive years.
In June, Medtronic highlighted clinical trial data that could drive sales of its MiniMed insulin pump system. Its proprietary meal detection technology helped patients with diabetes maintain ideal blood-sugar concentrations with less effort than usual.
Abbott Laboratories: A 1.8% yield
Abbott Laboratories (ABT 0.63%) offers investors a less-than-thrilling yield at the moment, but it's rising fast. The company has raised its payout by an outstanding 82% over the past five years.
Few companies are more reliable when it comes to raising their dividends. Abbott's payout has grown for 51 consecutive years.
In addition to the leading baby formula brands, Abbott sells next-generation medical devices such as the FreeStyle Libre brand of constant blood glucose monitors (CGMs). The latest CGM from Abbott, the FreeStyle Libre 3, is about the size of two pennies stacked on top of each other, but it still monitors blood sugar throughout the day.
Freestyle Libre devices aren't cheap, but they're a lot less expensive than the hospitalizations that become necessary when patients' blood sugar gets too high or too low. Health insurance benefits providers eager to save on soaring diabetes-related expenses drove Freestyle Libre sales up 23% year over year to an annualized $5.2 billion in the second quarter.
Abbott investors can look forward to more innovation-driven gains in the years ahead. In June, the FDA approved Aveir, the world's first dual-chamber leadless pacemaker.
Abbott Laboratories stock is trading for 25.3 times forward-looking earnings estimates at the moment. This seems like an insane multiple to pay for a company that just reported a 15% year-over-year drop in top-line sales. Before turning your back on this stock, though, you should know that declining COVID-19 test sales were responsible for the loss.
Now that the worst testing revenue losses are over, strong growth on the back of new medical devices seems likely. Buying some shares of this stock now and holding them for the long run looks like the right move to make for extra-cautious investors.
