2 Stocks That Are Passive Income Machines Worth Buying and Holding Forever

Among the many corporations that pay dividends, some do so unpredictably and irregularly. Others rarely raise payouts — perhaps once every few years — while others still quickly resort to dividend cuts when the going gets tough.

Companies that can consistently pay and raise dividends, and do so over a long period of time, are a special breed. These types of companies often have the characteristics of “forever stocks.” Such is the case with two healthcare giants: Abbott Laboratories (Okay 0.58%) AND Johnson & Johnson (JNJ 0.46%)It is worth investing in shares of these corporations and holding them permanently.

1. Abbott Laboratories

Abbott Laboratories is best known for its medical devices business, although the company’s portfolio is diverse. It operates in three other segments: diagnostics, pharmaceuticals, and nutrition. It also has deep footprints in dozens of countries around the world.

Abbott Laboratories generates steady revenue and profits. Even when it encounters problems, it finds ways around them. That’s been the case in recent years: While the pandemic hurt its medical device business, Abbott Laboratories developed coronavirus diagnostic tests to help maintain revenue. Then came the problems with its infant formula, but even then, Abbott kept moving in the right direction.

The company’s second-quarter revenue of $10.4 billion was up 4% year over year. Abbott Laboratories’ revenue was up 9.3% year over year on an organic basis, excluding sales of COVID-19 diagnostic tests. The company’s adjusted earnings per share of $1.14 were up 5.6% compared to the same period last year.

Abbott Laboratories has a long and successful history of innovation, financial performance, and stock market performance. And while the past is no guarantee, the company still has the tools to do well in the long run.

The healthcare giant has a wealth of experience navigating one of the most regulated industries—healthcare—and one that won’t be obsolete anytime soon. It also has a variety of long-term tailwinds and growth drivers.

Perhaps none is more important than its continuous glucose monitoring (CGM) franchise, FreeStyle Libre. It’s been its best-performing device in years, but as Abbott reported earlier this year, only 1% of the half-billion adults with diabetes worldwide have access to CGM technology. There’s a long way to go as Abbott Laboratories enters markets where CGM penetration is low.

What about the company’s dividend, which, with a profitability of 1.9%, is at the top of the average for S&P500? Abbott Laboratories has increased its payout for 52 consecutive years, making it the Dividend King. That’s an impressive streak that the company should maintain for a long time, thanks to its solid underlying business. Investors can safely hold this stock in their portfolios for good.

2. Johnson & Johnson

Johnson & Johnson is also the Dividend King. It has raised its payout for 62 consecutive years, 10 more than Abbott Laboratories. Johnson & Johnson’s strong run should give investors confidence that the company will weather the current challenges and thrive long after they end.

The drugmaker is under threat from the Inflation Reduction Act (IRA), or at least part of that relatively new law that gives Medicare the power to negotiate prices for the drugs it spends the most on. Three Johnson & Johnson drugs will be the subject of the first round of negotiations. Fortunately, those drugs are not included in the company’s midterm growth plans. However, subsequent rounds of negotiations could involve more Johnson & Johnson therapies.

The good news is that the company has managed to navigate major regulatory changes in healthcare for more than 100 years. When Johnson & Johnson was founded, Medicare didn’t exist (it was founded in 1965) and the U.S. Food and Drug Administration didn’t require efficacy data before approving drugs (which came out in 1962). Johnson & Johnson has made medical breakthroughs despite these and many other changes. The company boasts a broad portfolio of products across a range of therapeutic areas and medical devices.

Johnson & Johnson has been posting steady revenues and profits, and its balance sheet is rock solid. That’s why it has a AAA rating from Standard & Poor’s, which is even higher than the U.S. government’s rating. Investors don’t have to worry about Johnson & Johnson cutting its dividend, which yields an attractive 3%.