1 Dividend King to Buy Hand Over Fist Right Now

Kenvue (NYSE: KVUE) was a part of Johnson & Johnson until the parent company spun off its consumer health division to form the company nearly three years ago. As a spun-off entity, Kenvue retained the title of Dividend King, an elite group of public companies that have raised their dividend annually for 50 or more consecutive years.

Since the spinoff, Kenvue has continued to increase its dividend, including a 1.2% bump last year to $0.275 per share. That's 63 consecutive years of increases. The dividend yield is a sizable 4.53% at its current share price.

Here are three reasons to buy the healthcare stock hand over fist right now, either for income-oriented investors or as a short-term move:

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1. The impending Kimberly-Clark merger play

The biggest catalyst on the horizon is Kenvue's pending $40 billion mega-merger with Kimberly-Clark (NASDAQ: KMB), which is also a Dividend King, with 54 consecutive years of dividend increases. This deal could transform Kenvue from a slow-growth spinoff into a lean, optimized consumer goods powerhouse.

Consumer staples company Kimberly-Clark said it expects the combined company to capture roughly $2.1 billion in run rate cost synergies. Instead of a centralized corporate bureaucracy, local markets are being given full profit-and-loss ownership, allowing them to move quickly while leveraging Kimberly-Clark's massive global supply chain and distribution network to expand margins.

Kenvue shareholders will receive $3.50 per share in cash, plus 0.14625 Kimberly-Clark shares for each Kenvue share held, for a total consideration of $21.01 per share. When the deal was announced, Kenvue's stock, not surprisingly, went to $21 per share, but now it trades around $18.32, so buying the stock before the merger finalizes offers investors a clear benefit of nearly $3 per share.

The deal has already been approved by stockholders at both companies, though it still must be approved by foreign regulators.

2. A fortress portfolio of iconic brands

Even in economic downturns, consumers rarely cut back on essential health and self-care items. Kenvue owns some of the most dominant, trusted pure-play consumer health products in the world, including pain medicines Tylenol and Motrin, allergy medicines Zyrtec and Benadryl, Listerine mouthwash, skin and beauty products Neutrogena and Aveeno, and first-aid stalwarts Band-Aid and Neosporin.

These are all household names, giving Kenvue significant pricing power to combat inflation. They have consistently demonstrated an ability to protect gross margins because customers prefer paying for trusted efficacy over generic store brands when it comes to their health.

If the Kimberly-Clark deal goes through, those iconic brands will benefit from the larger consumer company's supply chain. If the deal doesn't succeed, Kenvue is doing fine financially. In the first quarter, it reported revenue of $3.9 billion, up 4.5% year over year, and earnings per share (EPS) of $0.25, up 47% over the same period last year.

3. A good dividend will get even better

In a volatile market, Kenvue acts as an excellent ballast. The stock features an exceptionally low beta of 0.50, meaning it experiences only a fraction of the wild swings seen in the broader S&P 500.

More importantly for income investors, it boasts a hefty dividend yield. The best part is that high yield may even go up after the merger. Kimberly-Clarke's dividend yield is slightly higher at around 4.9%, while its payout yield is lower.

The one complication of the merger is that to realize the full benefit of the higher dividend, investors will need to spend the cash they receive from their Kenvue shares on additional Kimberly-Clark stock.

James Halley has positions in Johnson & Johnson. The Motley Fool has positions in and recommends Kenvue. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.