Johnson & Johnson’s Healthy 3.3%-Yielding Dividend Is a Very Safe Way to Make Passive Income

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As a bystander, I’ve observed that Johnson & Johnson (JNJ), with its current increase of 6.21%, has been a dependable source of dividends for quite some time. This healthcare titan has managed to boost its distributions for an astounding 63 years in a row, even raising it by 4.8% this year alone. This exceptional track record positions Johnson & Johnson among the Dividend Kings – a select group of companies that have increased their dividend payouts for over 50 consecutive years.

As an avid investor, I’m thrilled to share that the dividends from this healthcare company surpass the S&P 500’s yield by more than double! With a yield of around 3.3%, it’s nearly twice as high as the S&P 500’s current record-low dividend yield of approximately 1.2%. This substantial, high-yielding payout makes Johnson & Johnson an exceptionally secure choice for those seeking steady dividend income.

A financial fortress

Johnson & Johnson recently disclosed their financial results for the second quarter, demonstrating yet again the security of their dividend distribution. The healthcare conglomerate indicated they garnered around $6.2 billion in free cash flow during the first half of this year, after investing $6.7 billion in research and development (R&D). This cash surplus comfortably covered their dividend payment, which has amounted to $6.1 billion so far this fiscal year.

Although the payout ratio appears quite compact, investors should not worry since the company’s free cash flow has only decreased slightly compared to the previous year. In the first half of the year alone, it produced approximately $7.5 billion in free cash flow. Johnson & Johnson managed to generate a total of $20 billion in free cash flow last year, which comfortably covered its $11.8 billion dividend expenses.

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Currently, Johnson & Johnson boasts one of the strongest financial structures globally. This corporation holds an exceptional AAA bond rating, shared by just two other companies worldwide, signifying their superior creditworthiness. By the close of the first quarter, the company had amassed a substantial $19 billion in cash and liquid assets on its balance sheet – enough to cover almost two years’ worth of dividend distributions. In contrast, its debt stands at only $51 billion, implying that Johnson & Johnson has a relatively modest net debt level for a corporation with an estimated market capitalization of around $375 billion.

Over the past year, Johnson & Johnson has managed to keep a robust financial position, despite investing approximately $15 billion in strategic growth initiatives that were not organic. Over the last two years, this investment has totaled over $30 billion.

Investing heavily to grow

Johnsons & Johnson’s strong financial structure allows them to devote significant resources to research and development (R&D) and mergers and acquisitions (M&A), fostering the expansion of their cutting-edge medicine and Medical Technology sectors. In the previous year, they allocated over $17 billion for R&D, representing approximately 19.4% of their total revenue. This places them among the top R&D spenders across all industries. Including acquisitions and other non-organic investments, Johnsons & Johnson invested a staggering $50 billion in growth ventures last year.

The CEO, Joaquin Duato, mentioned in the second-quarter earnings report that our investments focused on growth are yielding results, positioning us for enhanced growth during the latter part of the year. This positive development led the company to raise its projected annual revenue by $2 billion, signifying a 5.4% increase for the entire year. Additionally, they added $0.25 per share to their anticipated adjusted earnings per share, raising the midpoint to $10.68.

Over the coming years, the company projects steady, robust expansion. By the year 2027, Johnson & Johnson estimates that approximately a third of their MedTech revenue will be generated by newly introduced products.

Over the next decade, I witness this company planning to unveil over ten groundbreaking pharmaceutical products, each carrying a potential peak-year revenue of over $5 billion. These innovations are expected to compensate for the sales lost due to patent expiry, ensuring the company’s revenue and free cash flow growth remains robust. Furthermore, with its robust financial structure, this company will likely capitalize on strategic mergers and acquisitions in R&D when suitable opportunities present themselves.

A very safe dividend stock

Johnson & Johnson consistently demonstrates its strong capacity for disbursing dividends. Despite a decrease in free cash flow during the first half of this year, the healthcare company’s high-yielding payout maintains a robust foundation. With a sturdy financial structure and promising growth prospects on the horizon, the company appears well-equipped to maintain and potentially boost its dividend at a steady rate. Consequently, it remains an exceptionally secure choice for earning passive income through dividends.

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2025-07-17 14:50