Why Johnson & Johnson May Be the Closest Thing Investors Can Find to a Bulletproof Dividend Stock

Johnson & Johnson (NYSE: JNJ) is a Dividend King, with 64 consecutive years of annual dividend increases. That is the longest streak of any healthcare company. And the company has faced down some very difficult operating environments along the way. If you are looking for a dividend you can count on for the long-term, you should get to know Johnson & Johnson.

Johnson & Johnson's dividend just keeps growing

Companies don't become Dividend Kings by accident. It requires a strong business model that gets executed well in both good times and bad. Even well-run businesses eventually go through hard times. In fact, a business's strength doesn't really show until it's tested.

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The most public test of J&J's business probably came in the early 1980s when Tylenol containers were tampered with, causing consumer deaths. The company acted quickly and saved the important and prominent brand from destruction.

More recently, J&J has been facing legal issues related to the talcum powder it once produced. It has taken a different approach this time around, defending itself against consumer claims. However, what hasn't changed is the dividend's direction in the face of adversity. The healthcare giant continues to reward investors for sticking around through the good and bad times.

Today, following the spin-off of its consumer products business, J&J is focused on pharmaceuticals and medical devices. It is a dominant and well-respected player in both. What's notable is that healthcare isn't an optional purchase in these sectors, as delaying the expense could have truly dire consequences. Simply put, J&J has a very strong core.

Johnson & Johnson isn't cheap, but it is reliable

The biggest knock that investors are likely to have against J&J today is its valuation. The company's price-to-sales, price-to-earnings, and price-to-book ratios are all above their five-year averages. Value investors will most certainly want to look elsewhere. However, the 2.3% yield is more than twice the level of the S&P 500 index (SNPINDEX: ^GSPC). And the average healthcare stock's yield is only around 1.7%.

Notably, the dividend payout ratio is a reasonably 60% or so, which is roughly in line with the company's history. Its debt-to-equity ratio is about 0.7x, which is not overly worrying, especially given that it covers its interest costs 15x over. The dividend doesn't appear to be at any risk today.

Paying a premium price for a well-run Dividend King is likely to be worth it for income lovers worried about the lofty market today. In fact, the S&P 500 is trading near all-time highs despite multiple geopolitical conflicts, high inflation, and consumers who are already showing signs of economic concern. A recession wouldn't be at all surprising given today's political and economic backdrop. But even if an economic downturn did unfold, consumers would likely still buy J&J's drugs and medical devices. In fact, after exiting the consumer products space, the company is probably more resilient today than it was in 1982.

Slow and steady wins the race over the long-term

That said, J&J's business probably won't wow you. It is designed to be a reliable tortoise. Over the past decade, the company's revenues have grown at an annualized rate of 3%, while earnings have grown at roughly 7%. Over that span, the dividend grew at an annualized rate of around 6%, well above inflation over the long term.

If you are a dividend investor worried about the market's lofty levels and looking for a safe haven investment, slow and steady could be just what you are looking for. And while the stock isn't cheap, the yield is still relatively attractive. Paying up for a bulletproof dividend stock could easily end up being your best choice.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.