Dividend stocks can make great long-term investments. They supply your portfolio with a base income return every year. Meanwhile, the best ones can also deliver meaningful stock price appreciation as the underlying company grows its earnings and dividend payments.
NextEra Energy (NEE 0.23%) and Johnson & Johnson (JNJ -0.39%) are elite dividend stocks. They've increased their dividends every year for decades, and that steady growth should continue in the decades to come. That makes them great dividend stocks to buy for a potential lifetime of income.
Lots of power to continue growing its payout
NextEra Energy has increased its dividend payment annually for more than a quarter century. The utility has delivered above-average dividend growth in recent years, powered by its renewable energy investments. The company has grown its adjusted earnings per share at a 9.8% compound annual rate since 2012 while increasing its dividend at an even more impressive 11% compound annual rate. Its payout currently yields 3.2%, more than double the S&P 500's 1.5% dividend yield. Since 2000, the utility has produced a 14.2% annualized total return, double the S&P 500's 7% annualized return.
The clean energy-focused utility should be able to continue growing its payout in the future. NextEra Energy generates very stable cash flow backed by regulated rate structures and long-term contracts. That gives it the steady cash to pay dividends and invest in expanding its operations. The company has one of the most conservative dividend payout ratios in the utility sector. It also has one of the industry's strongest credit ratings. That gives it lots of financial flexibility to grow its dividend and operations.
The company expects to grow earnings at or near the upper end of its 6% to 8% annual target range through 2026. Meanwhile, it sees dividend growth of at least 10% per share through next year. The company's large and growing backlog of renewable energy development projects and investments to expand its utility in Florida will power its growth in the coming years.
NextEra sees tremendous growth prospects beyond 2026. The company estimates that the U.S. economy will need to invest $4 trillion to fully decarbonize by 2050 with renewables, hydrogen, and other clean energy sources. As a leader in clean energy, it should be able to capitalize on this massive opportunity to continue growing its earnings and dividends in the decades to come.
A very healthy dividend
Johnson & Johnson has been a phenomenal dividend stock over the years. The healthcare giant has increased its payout for 61 straight years. That puts it in the elite group of Dividend Kings, companies with 50 or more years of dividend growth. The company's growing dividend has driven healthy total returns. Its 7.8% annualized total return since 2000 has outpaced the S&P 500's 7% average annual total return.
The company's dividend, which currently yields 3.1%, is on a very healthy foundation. Johnson & Johnson is a financial fortress. It has an AAA bond rating, tied for the highest in the world. The company has a cash-rich balance sheet and a cash-gushing business model. It ended the third quarter with $24 billion in cash against $30 billion in debt.
Meanwhile, it has produced $12 billion in free cash flow through the third quarter of this year, even after investing $10.6 billion in research and development (R&D). That easily covered its $8.9 billion in dividend payments, enabling the company to repurchase $2.5 billion in shares.
Johnson & Johnson expects its R&D investments to help drive healthy revenue and cash-flow growth in the coming years. It sees its operational sales growing by 5% to 6% next year while rising at a 5% to 7% compound annual rate through 2030. That should drive similar earnings-per-share growth with strong free-cash-flow generation.
The company can enhance its growth by using its strong balance sheet to make strategic acquisitions. Johnson & Johnson recently agreed to acquire Laminar for $400 million and paid $16.6 billion to buy Abiomed in late 2022. Both of those deals bolstered its MedTech business. The company has the financial strength to plug holes in its drug pipeline and MedTech product offerings to enhance its long-term growth rates.
Durable dividend stocks
NextEra Energy and Johnson & Johnson have stood the test of time. They have increased their dividend payments every year for decades. That should continue in the future, given their strong financial profiles and the growth they still have ahead. That puts them in a strong position to supply their investors with a lifetime of dividend income.
Matthew DiLallo has positions in Johnson & Johnson and NextEra Energy. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
