Dividend-paying stocks have generally outperformed those that don't pay dividends over the long term. That's partly because maintaining a healthy dividend requires a solid underlying business. And investors who reinvest those dividends can significantly boost their long-term returns.
That said, not every company that pays a dividend is capable of consistency. Many find it necessary in hard times to decrease their payouts or suspend them altogether. Two that are unlikely to do either of those things anytime soon are Johnson & Johnson (JNJ -0.46%) and Abbott Laboratories (ABT 0.63%).
A highly exclusive group
Johnson & Johnson and Abbott Laboratories have incredible track records when it comes to boosting their payouts. Both are Dividend Kings -- companies that have raised their payouts for at least 50 consecutive years. Abbott Laboratories has raised its dividend for 52 straight years, while Johnson & Johnson's streak goes back 61 years. This reflects the fact that both companies have generally been incredibly robust, generating steady earnings and cash flows even during challenging economic times.
JNJ Revenue (Quarterly) data by YCharts.
These are precisely the qualities investors should look for when seeking companies that can deliver passive income through dividends for decades. The question is whether Johnson & Johnson and Abbott Laboratories still have those traits. Thankfully, the answer seems to be affirmative.
Healthcare never goes out of style
Occasionally, business models and even entire industries become obsolete. But Johnson & Johnson and Abbott Laboratories have been leaders in the healthcare sector for generations, in no small part because they've continued to innovate. Healthcare spending should continue to increase over the long run as the average age of the world's population keeps rising and the number of seniors grows.
Johnson & Johnson has been developing novel therapies for decades. It boasts a portfolio with more than 10 blockbuster medicines -- that is, they have annual sales over $1 billion -- and a deep pipeline of drug candidates that should lead to plenty of brand-new therapies. The company is also ramping up its medtech business. It plans to submit an application to the Food and Drug Administration this year to start human clinical trials for its robotic-assisted surgery device, Ottava.
Though Johnson & Johnson will trail the leader in robotic-assisted surgeries, Intuitive Surgical, it could still profit from this underpenetrated market over the long run: Only 5% of surgeries that could be performed robotically currently are. There are plenty of opportunities in the field. So Johnson & Johnson's innovative qualities look strong, and so does its future.
Abbott Laboratories, meanwhile, boasts a vast portfolio of medical devices and routinely launches new ones. Last year, it announced 10 new product approvals. The company has several avenues for growth, none more exciting than its continuous glucose monitoring (CGM) FreeStyle Libre franchise. CGM systems allow diabetes patients to stay on top of their blood sugar levels. Increased adoption of this innovative technology has been an important growth driver for Abbott.
Yet the company estimates that more than 500 million adults in the world now live with diabetes. Only about 1% of them have access to CGM technology, so there is lots of room to run for Abbott in this market.
Headwinds won't sink their businesses
Every company encounters obstacles. Johnson & Johnson and Abbott are no exception.
Johnson & Johnson has dealt with legal and regulatory challenges, most recently with the passage of the Inflation Reduction Act, which allows Medicare for the first time to negotiate with pharmaceutical companies on the prices of certain widely used drugs. This could mean lower revenue from those medicines for the companies that make them. Two of Johnson & Johnson's blockbuster products were among the 10 set for price negotiations in the first round. However, the company's ability to develop newer drugs and the diversification its medtech division affords it should allow it to deal with this challenge just fine over the long run.
Abbott Laboratories has dealt with somewhat slow revenue growth in recent years as the pandemic disrupted its operations. Some investors are also worried about the effect the rising use of weight-loss drugs like Wegovy will have on its diabetes care segment. None of these are particularly concerning. Abbott's revenue actually declined in 2023 -- its top line dropped by 8.1% to $40 billion -- but excluding sales of its coronavirus diagnostic products, sales increased by 11.6%. These dynamics won't affect Abbott's results forever, nor will the rise of weight-loss medicines. As the company argues, diabetes patients tend to use CGM devices in conjunction with anti-obesity drugs. Further, Abbott Laboratories is looking for other ways to serve the increasing number of patients who take weight-loss medications.
Two incredible dividend growth stocks
Johnson & Johnson and Abbott Laboratories have incredible dividend-raising track records, solid businesses, strong innovative abilities, and excellent growth prospects in an industry that will only continue to grow. Both also have dividend yields above the S&P 500's average of about 1.5%: Johnson & Johnson's stands at about 3% at recent prices, while Abbott's tops 1.9%. There is little doubt about it: Both stocks can maintain passive income programs for decades.
