Dividends can provide a steady stream of income to shareholders, but only if the dividend-paying company maintains or increases its payouts over the years. Unfortunately, not every dividend payer is capable of doing so. Plenty suspend or decrease their dividends when economic or company-specific troubles arise.
Thankfully, there are dividend stocks on the market that are poised to return steady and growing capital to shareholders over long periods. Let's consider two examples: Johnson & Johnson (JNJ 0.54%) and Merck (MRK 0.82%).
1. Johnson & Johnson
Johnson & Johnson has plenty of qualities that will appeal to long-term investors. As one of the largest pharmaceutical companies in the world, it has been developing innovative medicines for decades. Since Johnson & Johnson was first created, the regulatory landscape has changed significantly, and there have been market crashes, recessions, and more than one pandemic. Johnson & Johnson's ability to continue delivering excellent results through all that speaks volumes about the drugmaker. And it is still going strong.
NYSE: JNJ
Key Data Points
In 2023, the healthcare giant shed its consumer health division to focus on developing innovative medicines and medical devices. Last year, Johnson & Johnson's sales increased by 6.5% year over year to $85.2 billion; when excluding the impact of acquisitions and divestitures, the top line increased by 5.9%. Johnson & Johnson's adjusted earnings per share (EPS) climbed by 11% year over year to $9.92.
Those are solid results for a pharmaceutical giant. True, Johnson & Johnson is facing headwinds. With Medicare now authorized to negotiate the prices of some of the drugs it spends the most on, sales of some products, including some of Johnson & Johnson's, will almost certainly decline. The company should be able to balance out losses, though, thanks to a vast pipeline that currently sports 90 programs in various phases of development.
It shouldn't be too hard for a company with the resources that Johnson & Johnson has to steer its drug development strategy in a direction that will allow it to avoid Medicare price negotiations. So, I'm not worried. Johnson & Johnson is still a top stock to hold onto for the long term.
The company is a Dividend King on its 61st consecutive year of payout increases and the stock's 3% dividend yield is well above the 1.5% average for the S&P 500. The company is unlikely to suspend or reduce its dividends anytime soon, so income-seeking investors can find precisely what they want with this stock.
2. Merck
Merck's most important growth driver for a while has been Keytruda. Though sales of the cancer medicine should continue growing in the next few years, it will run out of patent exclusivity in 2028. Merck has been busy preparing for that eventuality. It recently made a step in the right direction when it earned FDA approval for Winrevair, a treatment for adults with pulmonary arterial hypertension (PAH), a rare and potentially fatal disease.
NYSE: MRK
Key Data Points
Sales projections for Winrevair have it exceeding blockbuster status ($1 billion in annural revenue), although it likely won't get close to Keytruda's multibillion-dollar empire. Still, the point is that Merck is slowly looking to rejuvenate its lineup. The company is working on a potential treatment for non-alcoholic steatohepatitis (NASH) called efinopegdutide. The NASH treatment market is still brand-new as the FDA approved the first medicine in this area just this year.
However, it is projected to grow rapidly in the coming years. In a phase 2 study, efinopegdutide proved more effective than semaglutide, the active ingredient in diabetes medicine Ozempic, which is also being developed to treat NASH. There is still a long way to go here, but recent developments highlight Merck's innovative abilities.
The company's financial results, minus sales of its coronavirus treatment, have been good. Last year, Merck's top line increased by 1% year over year to $60 billion. Sales grew by 9% compared to 2022, excluding the drugmaker's coronavirus product. Merck has been delivering solid financial results for a while and has survived patent cliffs before. It should be able to get through Keytruda's. Though it isn't a Dividend King, Merck also has an enviable dividend profile, sporting a 2.4% yield as of this writing, and it has increased its payouts by 40% in the past five years. Merck is a great defensive, income stock for long-term investors.
