As an investor, your goal is to select quality stocks that will advance over a period of years — but this doesn’t mean you have to wait a long time for all of the rewards. If you add a few dividend stocks to your portfolio, you’ll start collecting returns on a regular basis — without lifting a finger. And another positive point here is, no matter what the market or the particular stock is doing, you’ll still collect this passive income every year. This offers you an extra boost during good times and limits your losses during tough times.
Loads of companies pay dividends, so it might seem difficult make a selection. A great way to start is to consider the list of Dividend Kings, companies that have increased their dividend payments for at least 50 consecutive years. This shows they’re committed to rewarding shareholders, and it’s likely they’ll stick with this policy. And here’s some great news: You don’t need a fortune to start investing in Dividend Kings or to add some to your portfolio. With $500 — or even less — you can pick up the following three smart dividend buys.
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1. Johnson & Johnson
Johnson & Johnson (JNJ 1.78%) has increased its dividend payments for more than 60 years and today pays an annual dividend of $4.96 per share. This represents a dividend yield of about 3.3%, well above the S&P 500 dividend yield of 1.3%. And the company’s free cash flow of more than $19 billion shows it has what it takes to keep growth in dividend payments going.
But you’ll like J&J for more than just its dividend payments. The company is a giant in both pharmaceutical products and medical devices — and it’s heading into a new era of growth after spinning off its lower-growth consumer health business last year. The move is helping J&J pour resources into its most promising areas, and these are the innovative medicine and medtech businesses.
In the most recent quarter, J&J reported sales of more than 6% from each of these units on an operational basis. In innovative medicine, 11 key brands generated double-digit revenue growth, and in medtech, the company has become a category leader in four of the highest-growth cardiovascular intervention markets. And this is just to mention a couple of highlights.
So, when you buy J&J shares, you get the security of passive income — and an opportunity to watch this new wave of growth unfold over time.
2. Abbott Laboratories
Abbott Laboratories (ABT 0.59%) has lifted its dividend payments for more than 50 years, winning it a spot on the Dividend Kings list. The company pays a dividend of $2.20 per share, representing a yield of 1.9%. Like J&J, its free cash flow level means it has the resources to continue along this path.
ABT Free Cash Flow data by YCharts
I also like Abbott for its diversified healthcare business, with four distinct units: medical devices, diagnostics, nutrition, and established pharmaceuticals. What’s great about this is if one particular business faces headwinds, another may compensate. For example, a decline in coronavirus testing has weighed on the diagnostics business in recent times — but strength in medical devices has helped the company grow overall revenue.
In the most recent quarter, medical device revenue soared more than 11%, helping Abbott report a total increase in revenue of about 5% to more than $10 billion. And the company’s solid pipeline of potential products leads to a steady stream of new launches to boost future revenue.
Abbott even has branched out into wellness, recently releasing Lingo, a continuous glucose monitoring system available without a prescription — for those interested in monitoring blood sugar levels and improving their nutrition.
So, when you buy Abbott shares, you’ll get in on a solid, diversified healthcare company — and gain access to passive income.
3. Coca-Cola
Coca-Cola (KO 1.36%), like J&J, has increased its dividend for more than 60 years. The company today pays investors $1.94 per share, representing a dividend yield of about 3%. And like the other two companies I’ve mentioned here, Coca-Cola’s level of free cash flow — at more than $3 billion — makes me confident about the company’s ability to keep increasing payments.
I probably don’t have to introduce Coca-Cola to you as you might have one of the company’s products in your refrigerator: From the Coca-Cola beverage to Minute Maid juice and Dasani water, the company sells more than 200 brands worldwide. And the world’s biggest non-alcoholic beverage company provides about 2.2 billion servings of Coca-Cola drinks daily in more than 200 countries and territories.
So, Coca-Cola isn’t just about its eponymous drink, and this broad portfolio has helped the company grow over time. For example, the company’s water, sports, and tea categories include 12 billion-dollar brands. The newer products as well as the traditional sparkling beverages have helped revenue and net income advance over the long term. And this, along with Coca-Cola’s dividend track record, make this top beverage maker a smart addition to your dividend growth portfolio.
