If there is one thing income investors hate, it's when a company decides to slash or suspend its dividend. Yes, sometimes the business requires it, but that's cold comfort for those who count on regular and rising payouts. Recently, the leading pharmacy chain Walgreens Boots Alliance (WBA +0.00%) made the difficult decision to decrease its dividend by 48%, much to the dismay of investors.
The company's financial position arguably justifies the move, but what about investing in a stock whose underlying business is unlikely to make such a decision necessary? Here are two such stocks: Johnson & Johnson (JNJ 1.33%) and Microsoft (MSFT 0.26%).
NYSE: JNJ
Key Data Points
1. Johnson & Johnson
Johnson & Johnson has problems of its own. In 2022, the Inflation Reduction Act (IRA) was enacted into law in the U.S. Among other things, it will seek to make some drugs more affordable by allowing the government to negotiate better prices for them.
However, this likely means lower sales for the targeted medicines and the companies that market them. Some of Johnson & Johnson's therapies are on the list for the first round of negotiations, and there could be more in the future.
This problem will force Johnson & Johnson to think outside the box, develop newer medicines to escape this headwind, and maybe rely more on its medtech division. Whatever the company chooses to do, its track record of navigating various challenges is impeccable.
One issue the drugmaker does not have is meeting its debt obligations. Johnson & Johnson is one of the few companies with an AAA rating from Standard & Poor's, higher than even the U.S. government and a clear sign that the drugmaker can take care of its obligations.
Johnson & Johnson is also on an incredible streak of 61 consecutive years of dividend increases, which makes it a Dividend King. Once again, it is a sign that Johnson & Johnson's underlying business is solid and resilient and has been so for a while through multiple recessions, several presidential administrations, many legal changes and challenges, and two pandemics. In my view, we can expect more of the same for the company.
Its deep pipeline of products across its pharmaceutical and medical device units will regularly lead to brand-new approvals. The world's aging population will provide an important tailwind, since more seniors mean a greater need for medical care. And J&J should continue delivering decent revenue and earnings growth, which will help it sustain its impressive dividend track record for many years.
Income seekers can't go wrong with this top healthcare stock.
NASDAQ: MSFT
Key Data Points
2. Microsoft
Some stocks are known for their dividend. Microsoft isn't one of those, but that doesn't mean it isn't a great dividend stock. It all starts with the company's excellent business.
Microsoft is a leader in nearly every industry in which it operates, be it within the market for computer operating systems, cloud computing, and gaming. Also, the company boasts a competitive advantage from multiple sources.
Consider its suite of productivity tools, including Word, Excel, Teams, and more applications that have become an integral part of the day-to-day lives of millions of people and businesses. For many, it would be hard to jump ship, which grants Microsoft high switching costs. The company's cloud computing solutions arguably benefit from the same dynamic, while its brand name, which ranks as one of the most valuable in the world, doesn't hurt either.
Further, some of Microsoft's businesses have excellent growth prospects. The company's investment in OpenAI, the genius behind ChatGPT, looks like a great move now, and no doubt the generative AI market will provide more tailwinds to Microsoft. Cloud computing also seems to have plenty of white space left ahead.
Then there is the dividend. Although not part of the elite club of Dividend Kings, Microsoft has increased its payouts by nearly 168% in the past decade.
The tech stock also shares Johnson & Johnson's AAA credit rating, so investors don't have to worry about Microsoft's balance sheet. The company might not be known for its dividend, but it's an excellent pick for investors looking for regular payouts.
