Buying dividend-paying stocks to hold for long periods is a relatively simple method for building wealth. That said, picking stocks most likely to maintain and raise their dividend payouts isn't always so straightforward.
Johnson & Johnson (JNJ +0.65%) and Verizon Communications (VZ +0.57%) are two legendary dividend payers that recently announced results from the last three months of 2023. Let's look at their performances in light of their competitive advantages to see which is likely to deliver more dividend income to your brokerage account over the long run.
NYSE: JNJ
Key Data Points
Johnson & Johnson
Last April, Johnson & Johnson raised its dividend payout for the 61st year in a row. The well-established healthcare conglomerate isn't growing its payout by leaps and bounds, but it is up a healthy 32% over the past five years. At recent prices, it offers a 3% dividend yield.
Johnson & Johnson's medical technology segment and its pharmaceuticals business benefit from a slew of marketing authorizations from the Food and Drug Administration (FDA) and other regulators around the world. For example, sales of Darzalex, a drug first approved by the FDA to treat multiple myeloma in 2015, rose 22% last year to reach $9.7 billion.
Darzalex isn't the only blockbuster cancer drug to emerge from J&J's pipeline lately. Balversa, a targeted treatment for bladder cancer patients, recently earned full approval to treat patients who failed their first course of treatment. Clinical trial results that show Balversa reduced this difficult-to-treat patient group's risk of death by 36% compared to standard chemotherapy could soon drive sales up past $1 billion annually.
Rising sales of both pharmaceuticals and medical technology allowed J&J to report 2023 revenue that grew a healthy 6.5% year over year. On the bottom line, adjusted earnings bounded 11.1% higher.
NYSE: VZ
Key Data Points
Verizon Communications
Verizon's performance last year wasn't nearly as encouraging as J&J's and this is reflected in its dividend yield. Total revenue fell 2.1% last year and adjusted earnings per share fell 9% to $4.71 per share.
Disappointing headline figures are keeping the stock depressed even though it's raised its dividend payout for 17 consecutive years. At recent prices the stock offers an eye-popping 6.3% yield.
In 2023, Verizon's customers were unusually slow to upgrade their smartphones. Consumers and businesses struggling with inflation pushed wireless equipment revenue down by 10.6% year over year to $24.3 billion.
Luckily for Verizon and its investors, providing wireless services is a higher-margin business than equipment sales and it delivers reliable cash flows. Consumers and businesses can easily save some money by delaying new smartphone upgrades. Canceling your mobile or broadband internet service, though, is rarely an option.
Equipment sales might rebound in 2024 or they might not, but investors can expect Verizon to report growing service revenue. The fourth quarter of 2023 was the fifth consecutive quarter that Verizon reported more than 400,000 net new broadband subscribers.
Image source: Getty Images.
Which is the better buy now?
Last year, Verizon increased free cash flow by 33% to $18.7 billion, but you wouldn't know this by looking at its stock chart. It's only up by about 0.5% over the past year. At recent prices, you can add shares of the telecom giant to your portfolio for just 12.9 times trailing free cash flow or 9.1 times forward earnings expectations.
Last year, total revenue and adjusted earnings marched forward for Johnson & Johnson. As a result, you'll have to pay a much higher earnings multiple for its shares. The stock is trading for around 15 times the midpoint of management's 2024 adjusted earnings estimate.
I know people who have relationships with their mobile service providers that are older than their teenage children. The patents protecting market exclusivity for pharmaceutical products, though, rarely last as long.
By wisely investing today's profits into tomorrow's blockbusters, J&J could grow much faster than Verizon over the long run. That said, drug and medical device development can be unpredictable.
As one of three American telecom giants, Verizon's mobile and broadband businesses should display slow but steady gains for many years to come.
Investors with a lot of time before they plan to retire might prefer J&J over Verizon. For most income-seeking investors, though, Verizon looks like the better dividend stock to buy right now.
