Whether you prefer growth stocks, value stocks, dividend stocks, or a mixture of investments in your portfolio, price should only be one factor you consider when determining which businesses to add.
Dividends can be a great way to increase your returns with time while giving you extra capital to reinvest or keep in your portfolio. These kinds of stocks can be found across many different sectors and industries.
If you're looking for two top dividend stocks to consider for your portfolio and have $500 available to invest, read on.
1. Johnson & Johnson
Johnson & Johnson (NYSE: JNJ) is one of the largest pharmaceutical businesses in the world, and it's used that status to help drive favorable investor returns many times through the years. The company is one of a handful of businesses with a track record of not only paying but raising its dividend for more than 50 years.
In the case of Johnson & Johnson, the healthcare giant has increased its dividend every year for 62 years in a row. At the time of this writing, the stock yields approximately 3.2%, which is considerably more than the 1.3% the average company trading on the S&P 500 yields. From a forward annual dividend perspective, investors can expect a payout of $4.96 per share.
Johnson & Johnson also maintains a payout ratio of 80% of earnings. With its various businesses raking in $20 billion in free cash flow and $25 billion in operating cash flow over the trailing 12 months alone, it's safe to say that the company is financially sound enough to continue paying dividends to investors.
To be clear, J&J is dealing with ongoing talc-related litigation that has been a consideration for years at this point. While the outcome of these cases is pending and could cost the company millions in settlement damages, J&J has already set aside sufficient funds to meet these obligations and still honor its dividend commitment to shareholders.
Looking at results for the third quarter of 2024, Johnson & Johnson reported net sales of $22.4 billion, a 5% increase from the same period one year ago. The company also brought in net earnings of $2.7 billion on that amount. Both its innovative medicine and medtech segments grew net sales by similar clips from one year ago -- about 5% and 6%, respectively. Investors looking for a reliable income stock to buy and hold for the long haul may want to consider this no-brainer buy.
2. United Parcel Service
United Parcel Service (NYSE: UPS) has paid a dividend faithfully since the company first held its initial public offering (IPO) in 1999. It has also consistently raised that payout through the years. Its current forward annual dividend rate is $6.52 per share.
The current yield for UPS is just shy of 5% at the time of this writing, nearly 4 times higher than the average S&P 500 stock. That yield has become increasingly attractive because the company's share price performance has underwhelmed of late. Declines in package volume, higher operating and labor costs, and economic difficulties have weighed on the business.
It's worth noting that UPS has consistently raised its dividend every year for the last 15 years and counting. The company also maintains a payout ratio of well over 90% of earnings, while it has brought in free cash flow of $4 billion in the trailing 12 months alone.
While the package delivery giant has struggled the last few years due to tough macro headwinds, these are short-term factors that don't indicate an underlying issue with the company itself. Customers have also been switching to cheaper delivery options, which have weighed on UPS' top and bottom lines. The company has worked to cut costs in response where it can, including leaning into more automation, shutting down certain locations, and even shaving its workforce.
Slowly but surely, the tide seems to be turning as these changes and hopeful shifts in the economic landscape take effect. In Q3 2024, UPS reported revenue of $22.2 billion, a 5.2% bump above the $21.1 billion it delivered in the same quarter in 2023. A more significant green flag was its bottom line, where earnings according to generally accepted accounting principles (GAAP) rose by a notable 37% from the year-ago quarter to $1.5 billion.
UPS has proven its resilience through economic thick and thin in the past, despite the cyclicality of its industry and business. Its dividend history is robust, and the company has consistently rewarded shareholders through the years. For investors looking at a minimum five-year buy-and-hold horizon, this business could be well worth scooping up some shares.
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*Stock Advisor returns as of November 18, 2024
Rachel Warren has positions in Johnson & Johnson. The Motley Fool recommends Johnson & Johnson and United Parcel Service. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
