2 Unstoppable Dow Dividend Stocks to Buy and Hold Forever

Key Points

• Johnson & Johnson has increased its dividend for 63 straight years.

• Verizon has the longest dividend growth streak in the U.S. telecom sector.

• 10 stocks we like better than Johnson & Johnson ›

The Dow Jones Industrial Average tracks 30 of the country's top companies. These mature companies tend to be very profitable, enabling them to pay sustainable dividends.

Johnson & Johnson (NYSE: JNJ) and Verizon (NYSE: VZ) stand out among Dow stocks for their high dividend yields and unstoppable dividend growth track records. Here's what makes them great Dow dividend stocks to buy and hold for a potential lifetime of dividend income.

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A very healthy dividend

Johnson & Johnson is a financial fortress. The healthcare giant is one of only two companies in the world with a pristine AAA bond rating, higher than that of the U.S. government. The company ended the second quarter with only $32 billion of net debt on its balance sheet, consisting of $19 million of cash against $51 billion of debt. That's a modest debt level compared with the company's more than $400 billion market cap.

Johnson & Johnson's diversified healthcare business generates substantial and stable cash flow. Last year, the company generated $20 billion in free cash flow after spending about $17 billion in research and development (R&D), which accounted for 19.4% of its sales. This significant R&D investment maintained it as a leading R&D investor across all industries, as it continues to focus on medical innovation. Despite this heavy spending, the company's remaining free cash flow of $20 billion easily covered its $11.8 billion dividend payment, providing it with substantial excess free cash flow.

The healthcare company's financial flexibility enables it to capitalize on inorganic growth opportunities to expand its product pipeline. It has deployed over $15 billion into strategic acquisitions over the past year to enhance its growth profile.

Johnson & Johnson's growth investments should steadily increase its earnings and free cash flow. That should allow the healthcare giant to continue raising its 3%-yielding dividend, nearly double the Dow's dividend yield of 1.6%. It extended its dividend growth streak to 63 consecutive years earlier this year, maintaining its place in the elite group of Dividend Kings.

A cash flow machine

Verizon's mobile and broadband businesses generate consistent recurring revenue as customers pay their cellphone and internet bills. During the first six months of this year, the telecom giant produced $16.8 billion in cash flow from operations. After spending $8 billion on capital to maintain and expand its fiber and 5G networks, Verizon generated $8.8 billion in free cash flow. The telecom company paid $5.7 billion in dividends, allowing it to retain $3.1 billion to further strengthen its balance sheet.

The company's healthy excess free cash flow has enabled it to steadily reduce its leverage ratio, from 2.5 last year to 2.3 this year. That's giving it the financial flexibility to buy Frontier Communications in a $20 billion all-cash deal. The acquisition, which should close within the next year, will significantly expand its fiber network. The deal will also boost its earnings as it captures an expected $500 million in annual cost synergies.

Verizon expects its growth investments and recent tax policy changes to further increase its free cash flow. The company forecasts producing $19.5 billion to $20.5 billion in free cash flow this year, comfortably above its planned dividend outlay of less than $12 billion. That strong coverage ratio will further enhance its financial flexibility.

The company's strong and growing free cash flow should enable it to continue increasing its more than 6%-yielding dividend. Verizon has raised its payment for 18 straight years, the longest current streak in the U.S. telecom sector.

Blue chip dividend stocks

Johnson & Johnson and Verizon have unstoppable dividends. The Dow stocks generate lots of stable cash flow and have strong financial profiles. This enables them to invest in growing their operations and high-yielding dividends. That combination of durability, yield, and growth makes them great Dow stocks to buy and hold for a potential lifetime of dividend income.

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Matt DiLallo has positions in Johnson & Johnson and Verizon Communications. The Motley Fool recommends Johnson & Johnson and Verizon Communications. The Motley Fool has a disclosure policy.