This hasn't been a sensational year for the dividend stocks already in investors' portfolios, but you could hardly pick a better time to be a buyer. The risk-free returns institutional investors can receive from long-term Treasuries have risen to levels we haven't seen since before the global financial crisis kicked off about 15 years ago.
The ongoing flight to safety has reduced demand for reliable, dividend-paying stocks to a lower level than many investors can remember. While higher interest rates are wreaking havoc on stock prices, they won't unravel the competitive advantages that allow these companies to consistently outperform.
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In addition to the general lack of demand for dividend payers, both of these companies have issues of their own that have driven their stock prices down near 52-week lows. Let's take a closer look to see if they're bargains with a good chance to deliver heaps of passive income or just cheap.
Johnson & Johnson
Johnson & Johnson (JNJ 0.21%) has raised its dividend payout for 61 consecutive years, but a wonderfully reliable track record hasn't stopped its stock price from falling in 2023. At recent prices, shares of J&J have slid about 12% from a peak they set in July and offer a 3.1% yield.
NYSE: JNJ
Key Data Points
Over the past 10 years, J&J has been able to raise its dividend payout by 80% thanks mostly to growing contributions from its medical technology and biopharmaceutical businesses. Earlier this year, the company spun off its consumer-health business into a new outfit named Kenvue.
J&J's remaining operating segments are still diverse enough to stave off nearly any disruption. For example, its medtech segment sells a lot of replacement knees and robot-assisted systems that help surgeons install them. While COVID-related lockdowns were keeping patients out of surgical centers, J&J's pharma segment filled in the gap with blockbuster sales of its COVID-19 vaccine.
J&J's vaccine sales fell off a cliff this year, but its medtech segment has come roaring back. Now that the company can focus on medtech and pharmaceuticals, dividend growth could accelerate in the years ahead.
At recent prices, the stock trades for 11.3 times trailing-12-month earnings. That's a bargain price for a dividend grower you can rely on.
British American Tobacco
Other than being near 52-week lows, British American Tobacco (BTI +0.02%) and J&J don't have much in common. While healthcare needs keep rising, demand for cigarettes is declining steadily.
NYSE: BTI
Key Data Points
This tobacco giant's stock is trading at an incredibly low valuation of just 6.4 times trailing-12-month earnings because cigarette sales are falling even faster than anticipated. In the first half of 2023, cigarette volumes fell 5.7% year over year.
With help from price hikes, British American Tobacco reported total combustible-product sales that rose 0.2% year over year at constant currency. Sales of the company's non-combustible products rose 15.3% year over year, but this segment is responsible for less than one-fifth of total revenue.
Declining cigarette volumes are disappointing, but this company has enduring pricing power that can continue to make up the difference. British American Tobacco owns popular brands, like Newport, American Spirit, and Camel, the youngest of which is already over 40 years old. Heavy advertising restrictions that went into effect after these brands established themselves make it impossible for upstarts to build new brands that can compete.
British American Tobacco's payout has risen 18.2% since it began issuing a quarterly dividend in 2018. It probably won't be the fastest-growing dividend in your portfolio, but there's a good chance the 9.4% yield it offers at recent prices can keep moving in a positive direction. Put it together and this stock looks like a bargain now that's hard to pass up.
