There are hundreds of dividend-paying stocks on equity markets. Some are fairly unimpressive. They seldom increase payouts and are more than willing to pause dividend payments altogether if they encounter challenges. Others are the polar opposites: They offer regular dividend hikes even through the most challenging times. That's the kind of dividend investors want. Let's discuss two companies that fit this profile: Visa (V 0.74%) and Johnson & Johnson (JNJ 0.01%). These dividend stocks could join the $1 trillion club within seven years.
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1. Visa
Visa, a leading financial services company, likely won't need seven years to become a trillion-dollar stock. With a current market cap of $623 billion, that would require a compound annual growth rate (CAGR) of 7% -- well below the average for broader equities, and Visa is no average company. As one of the largest payment processors in the world, Visa collects a fee for every debit and credit card transaction it facilitates.
With billions of cards in circulation and trillions in payment volume, the company has a deep ecosystem that allows it to record consistent revenue, earnings, and free-cash-flow growth.
NYSE: V
Key Data Points
Visa has shared that success with its shareholders. After going public in 2008, it initiated a dividend and has increased its payouts every year since. And there are good reasons to think it can continue doing so for a very long time. Here are two reasons why. First, Visa's payout ratio looks extremely conservative at a bit under 24%. There is plenty of room for the company to grow its dividends and still have cash left over for other uses.
Second, Visa's industry should maintain strong momentum for a while. Cash is increasingly being displaced, e-commerce is growing, and all of this will drive demand for the kinds of services Visa provides, helping boost revenue and earnings even further. Visa's prospects through the next seven years (and beyond) look attractive.
2. Johnson & Johnson
With a current market cap of $530, Johnson & Johnson needs a 9.5% CAGR to reach $1 trillion in seven years. Although recent years have been somewhat challenging for the company, Johnson & Johnson can pull it off. The healthcare leader has significantly changed its business in recent years, giving up its slower-growing consumer health division, expanding its medtech unit, and doubling down on innovative pharmaceuticals.
NYSE: JNJ
Key Data Points
In my view, we are still in the early stages of the results of Johnson & Johnson's transformation. The company's work could yield a slew of new products over the next few years, thereby helping boost revenue and profits despite some patent cliff issues. One exciting area Johnson & Johnson is entering is robotic-assisted surgery, with its device, the Ottava, nearing clearance in the U.S.
It will give it an attractive avenue for growth. Finally, Johnson & Johnson remains a terrific dividend stock. It is a Dividend King, a corporation with at least 50 consecutive years of dividend increases. Johnson & Johnson's payout ratio is also reasonable at 46.59%, giving it ample room for sustained dividend growth.
