Famed investor Warren Buffett is known for several things, including his love for dividends and his penchant for companies whose shares he can hold forever. It’s not surprising, then, to find great dividend stocks worth holding on to for good among Berkshire Hathaway‘s (NYSE: BRK.A) (NYSE: BRK.B) holdings. Two of the most attractive are Johnson & Johnson (JNJ 0.45%) and Visa (V -0.18%). Read on to find out why these companies are ideal for income-seeking investors with a planned holding period of forever.
1. Johnson & Johnson
Johnson & Johnson needs no introduction. It is one of the world’s largest and most recognizable healthcare brands. It boasts vast global footprints, has an extensive portfolio of medicines and medical devices, and routinely delivers robust financial results. Furthermore, for more than 60 years, the company has been raising its dividends yearly. That makes it a Dividend King. In the past 10 years, Johnson & Johnson’s payouts have increased by a respectable 80%.
It’s worth noting that the company’s business recently changed. Johnson & Johnson spun off its consumer health division — home to famous over-the-counter brands — to focus on its core pharmaceutical and medtech operations. The transaction should lead to stronger growth, since consumer health was dragging the company down. Johnson & Johnson also thinks it will now be able to unleash its innovative capabilities even more in its remaining segments.
The company has made it a habit to develop innovative medicines. Its current lineup features a slew of blockbusters, while its pipeline contains several dozen programs. Johnson & Johnson faces a potentially major regulatory issue within its pharmaceutical division.
The recently passed Inflation Reduction Act, which grants Medicare the power to negotiate the prices of certain drugs, will target some of the company’s medicines. While Johnson & Johnson is planning to challenge it in court, the company’s vast and diversified portfolio is precisely what could allow it to deal with this problem. In my view, this won’t drown Johnson & Johnson’s business. Investors can continue to expect the company to remain a leader in healthcare while spending on medical care grows over the long run due to demographic changes, including the world’s aging population.
Johnson & Johnson’s dividend should also be safe — it would take something catastrophic for the company to miss an annual increase and choose to get booted out of the exclusive group of Dividend Kings. Even the COVID-19 pandemic wasn’t able to do that. Whatever the economy or the market does, Johnson & Johnson always seems to have an answer. That’s why it has lasted this long and can continue performing well for much longer.
2. Visa
Visa’s business is ubiquitous. As a leading payment processing platform, its services are used whenever someone swipes a credit card with Visa’s logo. That’s millions of transactions per day, and the company pockets a fee for every single one. Visa has only one noteworthy direct competitor in this space, namely Mastercard. It is a functional duopoly that will be difficult to break because of the associated network effects.
That’s why Visa’s financial results have generally been robust. And its margins make its business even more attractive. Having already established its payment network, the company’s transactions don’t add additional costs to its operations. The result is juicy margins.
V Gross Profit Margin (Quarterly) data by YCharts
Visa’s solid and profitable business explains how the company can afford to pay and raise its dividends regularly.
Visa may not be a Dividend King, but over the past decade, it has raised its payouts by an impressive 350%. Yet, Visa’s cash payout ratio remains a modest 19.4%. In other words, there is still substantial room for dividend hikes in the future, and investors can expect as much. Visa’s entire business should also continue growing despite it seeming like it has already conquered the world.
But we don’t live in a cashless world yet, not even close. Of course, credit card penetration varies by region and tends to be higher in North America than in most other places. That means there is still a vast opportunity for Visa to grow its payment volume, revenue, earnings, and free cash flow for a long time. The stock is well worth keeping forever.
Prosper Junior Bakiny has positions in Johnson & Johnson. The Motley Fool has positions in and recommends Berkshire Hathaway, Mastercard, and Visa. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
