Income stocks get their name because they provide dividend payments to your portfolio, expanding your returns and investment capital over time. Not only can income stocks boost your overall return on investment, but they can also be an excellent way to diversify the types of stocks you keep in your portfolio.
If you're looking for income stocks to buy right now, here are two well-known names to consider for your list of potential investments.
1. Johnson & Johnson
Johnson & Johnson (JNJ -0.36%) has an impressive history of paying and raising its dividends through up and down markets. The company has increased its dividend every single year for 62 years and counting, and most recently boosted its quarterly dividend by a healthy 4.2%.
J&J's stock has been somewhat volatile over the past three years, and it's up less than 1% in that span. The lack of price performance is part of why the dividend yield is hovering around 3.1%. That's more than double the 1.3% yield of the average stock trading on the S&P 500. Its forward annual dividend is $4.96 per share, or $1.24 on a quarterly dividend basis. Johnson & Johnson maintains a payout ratio of about 73% of earnings. Looking back over the trailing five-year period, Johnson & Johnson has increased its dividend by around 30%, helping drive a total return of around 44% in that time frame (the S&P 500's total return is 110%).
Johnson & Johnson's underperformance in recent years is tied directly to litigation involving its talc products. The company has tried multiple strategies to resolve the issue, including efforts to consolidate its pending talc lawsuits and focus them on a subsidiary created specifically to manage settlement payments through a bankruptcy protection filing.
For instance, Johnson & Johnson recently increased its proposed settlement commitment to $8 billion. The company said in its filing that 83% of current claimants and future claims representatives support this latest bankruptcy plan. This approach of consolidating claims into a bankrupt subsidiary has been struck down by multiple courts in the past, so it remains to be seen what will happen with this new case. Still, Johnson & Johnson has already set aside billions to fund any settlement reached while maintaining its shareholder obligations and focusing on business growth.
J&J closed out the most recent quarter with $26 billion in cash on hand, so it could easily pay off those claims and have abundant liquidity left to honor its dividend and other commitments. Johnson & Johnson's net sales rose 4.3% year over year to $22.4 billion in the most recent quarter, while profits totaled $4.7 billion. The company benefits from a wide range of top-selling medical devices and medicines, all of which serve essential needs of healthcare customers and providers. It spun off a slow-growing segment of the business into its own entity in May 2023 so the remaining business can better focus on higher-growth efforts.
This is an extremely resilient business that operates in a relatively stable sector, and it looks like an excellent addition to a diversified portfolio in a variety of market cycles.
2. Coca-Cola
Coca-Cola (KO -0.19%) is another blue chip stock with an impressive history of honoring its dividend obligation to investors. The company has hiked its dividend every single year for 62 years in a row, and its yield based on current share prices is approximately 2.7%. It boasts a forward annual dividend rate of $1.94 per share, or a quarterly per-share dividend of $0.49.
While that 2.7% yield might seem on the lower end of the spectrum, it's down partly because the stock price is up nearly 27% in the past year. The yield over the past decade averaged 3.1%. It's also worth noting that Coca-Cola maintains a manageable payout ratio of approximately 77%, and its dividend has increased more than 20% just in the last five years. If you look at the company's total return in that five-year timeframe, which factors in both share price gains and dividends, it's in the ballpark of 56%.
From a business standpoint, Coca-Cola has been delivering positive financial growth on both the top and bottom lines while introducing new products, including further expansion into the alcoholic beverages category. For example, the company just introduced a partnership with Bacardi Limited to offer BACARDÍ rum and Coca-Cola as a ready-to-drink pre-mixed cocktail, with the initial launch set to take place in Mexico and specific European markets in 2025.
Global unit case volume rose 2% year over year in the second quarter of 2024, enabling 3% net revenue growth and a 10% increase in operating income. Total net revenue came to $12.4 billion for the three-month period, and Coca-Cola delivered free cash flow of $3.3 billion. Over the trailing 12 months, the company has raked in $11 billion in net income, and its total cash position came to $19 billion at the end of the most recent quarter.
Coca-Cola has long been known for moderated growth, from both a share price and a revenue and earnings growth perspective. However, its consistent dividends, underlying core financial strength, and leadership in numerous segments of the beverage market have made it a mainstay for many investors. So, while you're not looking at a lightning growth story here, investors searching for a value-oriented business with a time-proven habit of delivering steady returns can find one in Coca-Cola.
