1 Passive Income Vehicle Every Investor Should Own
Building multiple passive income streams is a well-trodden path to early retirement. In practice, however, it can be seriously challenging to spot worthwhile passive income streams.
Tier 1 dividend stocks, or equities backed by companies with an unwavering commitment to rewarding shareholders through regular distributions and increases to the dividend, are a simple way to cut out the noise.
Many of these companies have been paying dividends for decades, and even better, growing the dividend for decades as well. Here is a brief overview of one Tier 1 dividend stock that is an excellent choice for any type of investor on the hunt for a generous and relatively safe passive income stream.
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1 passive income vehicle every investor should own
One exemplary Tier 1 dividend stock is healthcare giant Johnson & Johnson (NYSE: JNJ). With a storied history of innovation and reliability in terms of dividend payments, J&J has established itself as a cornerstone in the portfolios of investors who prioritize long-term income generation. Speaking to this point, the healthcare company's 3.31% yield is more than double the average yield of S&P 500 listed companies, and it is one of the highest yields among blue-chip dividend stocks to boot.
Apart from its hefty yield, J&J stands out as a top passive income stock for four key reasons:
Decades of dividend payments: J&J's exceptional free cash flow generation has allowed it to dole out consistent dividend payments to shareholders for decades, making it a highly reliable passive income stream.
Consistent dividend growth: Not only has J&J been paying dividends, but it has also been increasing them for 62 straight years, showcasing the company's growth and commitment to rewarding loyal shareholders.
Diversified revenue streams: As a leader in multiple healthcare industries such as pharmaceuticals and medical devices, J&J's diversified portfolio provides a buffer against economic uncertainty, further solidifying its position as a top-tier dividend stock.
A rock-solid shareholder base: Despite J&J's talcum powder litigation headwind, the company still sports a 71% institutional ownership base as of this writing. Institutional investors tend to be long-term shareholders, which helps to lower share price volatility, increase liquidity, and power up demand for the stock.
What are the risks?
Even blue-chip healthcare stocks like J&J have some important risk factors investors should consider carefully. J&J's biggest risk factors include upcoming patent headwinds, increasing competition – especially in oncology, and a relatively weak late-stage pipeline compared to some of its closest peers.
Wall Street analysts, however, don't think any of these risk factors will ultimately derail the company's growth trajectory or ability to continue paying out a strong dividend in the years ahead.
A solid foundation for retirement-oriented portfolios
For investors looking to build a retirement portfolio that can weather economic storms and provide steady income, J&J is a compelling choice. Its resilience and performance over the years have proven that it can be a foundational asset, offering both stability and growth potential.
J&J represents the epitome of a blue-chip dividend stock, making it an essential passive income vehicle for any investor. Its unwavering commitment to dividend payments and increases, coupled with its robust, diversified business model, make the healthcare stock a standout choice for those seeking a simple way to earn money in a passive manner.
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George Budwell has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
