2 dividend stocks to buy and hold forever

Dividends can provide shareholders with a steady stream of income, but only if the company paying them maintains or increases the payout over a number of years. Unfortunately, not all dividend payers can do that. Dividends are often suspended or reduced when economic or company-specific problems arise.

Thankfully, there are dividend stocks on the market that are prepared to return steady and increasing capital to shareholders over the long term. Let’s consider two examples. Johnson & Johnson (JNJ -0.07%) and Merck (MRK 0.26%).

1. Johnson & Johnson

Johnson & Johnson has many qualities that may interest long-term investors. One of the world’s largest pharmaceutical companies, the company has been developing innovative medicines for decades. Since Johnson & Johnson was first founded, the regulatory environment has changed significantly, there have been market crashes, recessions, and more than one pandemic. Johnson & Johnson’s ability to consistently deliver superior results, all of which says a lot about the pharmaceutical company. And it’s still going strong.

In 2023, the healthcare giant spun off its consumer health division to focus on developing innovative drugs and medical devices. Last year, Johnson & Johnson’s sales reached $85.2 billion, up 6.5% from the previous year. Excluding the impact of acquisitions and divestitures, sales increased 5.9%. Johnson & Johnson’s adjusted earnings per share (EPS) increased 11% year-over-year to $9.92.

This is a solid result for a large pharmaceutical company. In fact, Johnson & Johnson is facing headwinds. Now that Medicare has been given the power to negotiate the prices of some of the drugs it spends the most money on, sales of some products, including some from Johnson & Johnson, will almost certainly decline. But the company should be able to balance out the losses thanks to its extensive pipeline, which currently has 90 programs in various stages of development.

It wouldn’t be difficult for a company with the resources that Johnson & Johnson has to steer its drug development strategy in a way that would avoid Medicare price negotiations. So I’m not worried. Johnson & Johnson is still the best stock to own for the long term.

The company is a dividend king with 61 consecutive years of dividend increases, and the stock’s 3% dividend yield is well above the previous quarter’s average of 1.5%. S&P 500. The company is unlikely to suspend or reduce its dividend any time soon, so investors seeking income may find exactly what they are looking for with this stock.

2. Merck

For some time, Merck’s most important growth driver has been Keytruda. Sales of cancer drugs will continue to grow in the coming years, but patent exclusivity expires in 2028. Merck has been busy preparing for just such a situation. We took a step in the right direction recently when we won FDA approval for Winrevir, a treatment for adults with pulmonary arterial hypertension (PAH), a rare and potentially fatal disease.

Winrepair’s revenue projections exceed blockbuster levels ($1 billion in annual revenue) but are unlikely to come close to Keytruda’s multibillion-dollar empire. Still, the point is that Merck is slowly working to revitalize its lineup. The company is researching a potential treatment for non-alcoholic steatohepatitis (NASH) called efinopegdutide. The market for NASH treatments is still new, as the FDA approved the first drug in this field this year.

However, rapid growth is expected over the next few years. In a phase 2 study, epinopegdutide proved to be more effective than semaglutide, the active ingredient in the diabetes drug Ozempic, which is being developed to treat NASH. Although there is still a long way to go, recent developments highlight Merck’s innovative capabilities.

Excluding sales of coronavirus treatments, the company’s financial results were strong. Last year, Merck’s sales reached $60 billion, up 1% from the previous year. Excluding pharmaceutical companies’ coronavirus products, sales increased 9% compared to 2022. Merck has been delivering solid financial performance for some time and has survived patent cliffs before. You should be able to get through Keytruda. While not a dividend king, Merck has an enviable dividend profile, boasting a 2.4% yield at the time of this writing, and has increased its dividend by 40% over the past five years. Merck is a great defensive and income stock for long-term investors.