Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Johnson & Johnson in Focus

Based in New Brunswick, Johnson & Johnson (JNJ) is in the Medical sector, and so far this year, shares have seen a price change of 14.85%. The world's biggest maker of health care products is currently shelling out a dividend of $2.48 per share, with a dividend yield of 2.99%. This compares to the Large Cap Pharmaceuticals industry's yield of 2.22% and the S&P 500's yield of 1.54%.

Looking at dividend growth, the company's current annualized dividend of $4.96 is up 1% from last year. Over the last 5 years, Johnson & Johnson has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.54%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Johnson & Johnson's payout ratio is 50%, which means it paid out 50% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, JNJ expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $10.58 per share, representing a year-over-year earnings growth rate of 6.01%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, JNJ is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Johnson & Johnson (JNJ) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research