When I consider the foundations of long-term wealth, especially in the context of retirement planning or generational investing, dividend-paying stocks consistently emerge as core portfolio holdings. Among these, only a few companies deliver large, consistent dividends backed by durable business models and strong free cash flows. In this article, I’ll walk through two dividend payers I believe are worth buying and holding forever. I’ll explore their financials, historical reliability, and long-term value proposition, all through the lens of American investors planning for stability and income.
What Makes a Dividend Worth Holding Forever?
A sustainable dividend must be supported by three pillars: consistent earnings, robust free cash flow, and a defensible business model. I always look at the dividend payout ratio to assess sustainability:
Dividend\ Payout\ Ratio = \frac{Dividends\ per\ Share}{Earnings\ per\ Share}If this ratio stays under 60%, and the company is still reinvesting for growth, I take it as a strong signal of health. I also examine the company’s history of dividend increases, as dividend aristocrats—those that have raised their payouts annually for 25+ years—often reflect management’s commitment to income investors.
Let’s dive into two giants that meet all my criteria.
1. Johnson & Johnson (NYSE: JNJ)
Overview
Johnson & Johnson is a diversified healthcare conglomerate operating in three major segments: pharmaceuticals, medical devices, and consumer health. JNJ has paid and raised its dividend for over 60 years, making it a Dividend King.
Dividend and Cash Flow
As of this writing, JNJ pays an annual dividend of $4.76 per share, which translates to a yield of approximately 3% based on a stock price of around $160. Its earnings per share are roughly $10, giving a payout ratio:
\frac{4.76}{10.00} = 0.476\text{ or }47.6%This level is healthy and allows for capital reinvestment. Its free cash flow in the most recent fiscal year was approximately $20 billion, with dividends paid totaling around $11 billion—again suggesting plenty of cushion.
Risk Management
I see JNJ’s diversified revenue stream as a strong buffer against sector-specific downturns. For instance, during the COVID-19 pandemic, its pharmaceutical unit continued to generate growth even when elective medical procedures were halted.
Comparison Table: JNJ vs. Healthcare Sector Average
| Metric | JNJ | Healthcare Sector Average |
|---|---|---|
| Dividend Yield | 3.0% | 1.8% |
| Dividend Growth (10-Year) | 6.3% | 4.1% |
| Free Cash Flow Margin | 22% | 14% |
| Debt-to-Equity Ratio | 0.42 | 0.61 |
Why I Hold JNJ Forever
From a long-term income perspective, JNJ provides not just consistent cash returns but also peace of mind. Its moat in healthcare and commitment to shareholder returns position it as a foundational dividend stock.
2. Procter & Gamble (NYSE: PG)
Overview
P&G is a consumer staples giant with a brand portfolio that includes Tide, Pampers, Gillette, and Oral-B. It operates in over 180 countries and is another Dividend King, having raised its dividend for 67 consecutive years.
Dividend and Cash Flow
PG’s current annual dividend is $3.91 per share. With an EPS around $6.35, the payout ratio stands at:
\frac{3.91}{6.35} = 0.615\text{ or }61.5%Though slightly higher than JNJ’s, it remains within a comfortable range. The company generated over $15 billion in free cash flow last year and paid out around $8 billion in dividends.
Recession Resilience
One reason I favor PG is its performance during recessions. In economic downturns, consumers still buy essentials like detergent and baby diapers. During the Great Recession and COVID-19 pandemic, PG maintained stable earnings and continued dividend increases.
Historical Dividend Growth Table
| Year | Dividend per Share | YoY Increase |
|---|---|---|
| 2020 | $3.16 | 6.0% |
| 2021 | $3.48 | 10.1% |
| 2022 | $3.61 | 3.7% |
| 2023 | $3.81 | 5.5% |
| 2024 | $3.91 | 2.6% |
Why I Hold PG Forever
From a consumer staples perspective, PG is as close as I get to a bond with equity upside. Its international footprint, brand loyalty, and consistent margin make it an ideal dividend anchor.
Dividend Stability: Stress Test Scenario
To examine how these companies might perform under stress, I ran a stress test assuming a 20% drop in earnings due to economic recession.
JNJ Stress Test:
- EPS falls to $8.00
- New payout ratio: \frac{4.76}{8.00} = 0.595\text{ or }59.5%
- Still below the critical 60% mark
PG Stress Test:
- EPS falls to $5.08
- New payout ratio: \frac{3.91}{5.08} = 0.769\text{ or }76.9%
- Higher, but given its stable cash flow, not immediately alarming
Total Return Perspective
Although this article focuses on dividends, I consider total return, which includes price appreciation, critical for long-term wealth:
Total\ Return = \frac{Ending\ Value - Beginning\ Value + Dividends}{Beginning\ Value}Both JNJ and PG have delivered 8–10% annualized total returns over the past 20 years. These numbers match or exceed the broader S&P 500 when adjusted for risk.
Final Thought
In my view, Johnson & Johnson and Procter & Gamble represent two of the most reliable dividend stocks available to US investors. Their long track records, strong cash flow, and consistent dividend growth make them compelling choices for anyone seeking income and capital preservation. I see them not as speculative opportunities but as financial bedrock—assets that do not just survive economic downturns, but thrive through them.
By holding these companies, I don’t worry about market noise. I sleep well knowing my capital is working steadily, paying me back quarter by quarter. These dividends are not just numbers—they’re part of a strategy that helps me build wealth with discipline and patience.
