For investors looking for a dependable source of passive income, a systematic screening process is important. One useful method involves selecting for companies that provide a good dividend and also have the fundamental financial capacity to maintain and possibly raise those payments. This idea goes past only targeting the largest yield, concentrating on quality and durability instead. A practical step is to filter for stocks with a high ChartMill Dividend Rating, which examines yield, growth, and payout safety, while also setting a minimum level for profit and financial soundness ratings. This makes certain the final list includes not only good dividend payers, but also companies with solid foundations.
Johnson & Johnson (NYSE:JNJ), the global healthcare leader, appears as a top example from this kind of screening method. The company's selection shows its attractiveness to dividend-oriented investors who value steadiness and a long history together with income.
Dividend Strength and Reliability
The center of JNJ's attractiveness for income investors is found in its long-running and dependable dividend program. The company's ChartMill Dividend Rating of 7 shows a good overall evaluation of its payout.
- Good and Competitive Yield: JNJ presently has a dividend yield near 2.53%. This yield is fair and, more significantly, is better than many of its industry competitors and the wider S&P 500 average. This shows the company gives a better-than-average income return within its market.
- Notable Growth History: A main part of dividend investing is the chance for rising income. JNJ does very well here, with a dividend that has risen at a notable yearly rate above 9% over the last five years. This steady increase shows management's dedication to giving more capital back to shareholders.
- Long Record of Payment: Dependability is critical. JNJ has a history of not just paying but also raising its dividend for more than ten years. This extended record of consistent payments creates important trust for investors who depend on dividend income.
Supporting Financial Health
A lasting dividend depends on the company that issues it. This is why filtering for financial soundness is a key part of the approach. JNJ's ChartMill Health Rating of 6, while pointing to some items to note, is backed by several basic strengths that support its dividend.
- Good Solvency: The company's Altman-Z score points to a small chance of bankruptcy, and its Debt to Free Cash Flow ratio is very good next to industry competitors. This means JNJ produces enough cash to easily manage its debt, a key point for long-term steadiness.
- Note on Liquidity Measures: The report mentions lower current and quick ratios, which usually measure short-term liquidity. But, it usefully explains this by noting JNJ's very good solvency and profit. For a large, steady company with predictable cash flows like JNJ, these common liquidity ratios are less important than they would be for a smaller, more variable company. The good cash generation ability is the more important measure for dividend safety.
Profitability as the Source
Finally, dividends are paid from earnings. JNJ's good ChartMill Profitability Rating of 8 confirms the company has the earning capacity to support its shareholder returns. High return measures on assets, equity, and invested capital all rank JNJ with the better performers in the pharmaceuticals industry. Good and steady profit and operating margins further show a business with pricing ability and efficient management. This consistent profit is the source that supports both the company's growth investments and its reliable dividend payments.
Valuation and Growth Points
From a valuation view, JNJ seems fairly valued within its sector, trading below many industry competitors on several measures, including Price/Earnings and Price/Free Cash Flow. While its earnings and revenue growth have been slow in recent years, analysts forecast a rise in both measures in the future. For a dividend investor, this mix, a fair valuation together with expected better growth, indicates the possibility for both income and some price increase.
A Detailed Fundamental Analysis of JNJ is available here, giving a more complete look at all the ratings and measures covered.
Finding Other Dividend Options
Johnson & Johnson represents the kind of company a quality dividend filter tries to find: one with a dependable, increasing payout backed by good profit and sound financial footing. For investors aiming to create or add to a collection of similar income-producing stocks, the screening method that found JNJ can be a useful beginning.
You can review the complete "Best Dividend Stocks" screen and its present findings for yourself here. This tool lets you see other companies that fit these careful standards for dividend safety and financial soundness.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
