2 stocks that are passive income machines to buy and hold forever

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

Those companies that can regularly pay and raise their dividends and do so for a long time are a special breed. Businesses of this kind often have the qualities of “forever shares”. This is the case of two health giants: Abbott Laboratories (ABT 0.58%) and Johnson & Johnson (JNJ 0.46%). The stocks of these corporations are worth investing in and holding forever.

1. Abbott Laboratories

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

Abbott Laboratories generates consistent revenue and earnings. Even when he encounters problems, he finds ways around them. It has done so in recent years: Although the pandemic has hurt its medical device business, Abbott Laboratories has been developing coronavirus diagnostic tests to shore up its revenue. Then there were issues with baby formula, but even then, Abbott kept moving in the right direction.

In the second quarter, the company’s revenue of $10.4 billion rose 4% year over year. Abbott Laboratories’ top line organically grew 9.3% year-over-year, excluding sales of COVID-19 diagnostic tests. The company’s adjusted earnings per share of $1.14 rose 5.6% from the year-ago period.

Abbott Laboratories has a long and successful track record of innovation, financial results and stock market performance. And while past is no guarantee, the company still has the tools to perform well in the long term.

The healthcare giant has extensive experience navigating one of the most regulated industries — healthcare — and one that won’t become obsolete anytime soon. It also has various long-term headwinds and growth factors.

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

What is the company’s dividend, which at a yield of 1.9% exceeds the average for S&P 500? Abbott Laboratories has increased its payout for 52 consecutive years, making it a Dividend King. It’s an impressive streak that the company should maintain for a long time to come thanks to its solid core business. Investors can permanently hold these shares in their portfolios.

2. Johnson & Johnson

Johnson & Johnson is also a dividend king. It has increased its payout for 62 consecutive years, 10 more than Abbott Laboratories. Johnson & Johnson’s numbers should give investors confidence that it can survive its current challenges and thrive long after they’re gone.

The drugmaker is threatened by the Inflation Reduction Act (IRA), or at least a section of that relatively new law that gives Medicare the power to negotiate the prices of the drugs it spends the most on. Three of Johnson & Johnson’s drugs will be targeted in the first round of negotiations. Fortunately, these drugs do not figure in the company’s medium-term growth plans. However, subsequent rounds of negotiations could go after more Johnson & Johnson therapies.

The good news is that the company has been through major healthcare regulatory changes for more than 100 years. When Johnson & Johnson was first created, Medicare did not exist (it was established in 1965), and the US Food and Drug Administration did not require efficacy data before approving drugs (which came in 1962). Johnson & Johnson produced major medical breakthroughs despite these and many other changes. It boasts a wide range of products in several therapeutic areas and medical devices.

Johnson & Johnson is posting consistent revenue and earnings, and its balance sheet is solid. That’s why it has a AAA rating from Standard & Poor’s, which is even higher than that of the US government. Investors don’t have to worry about Johnson & Johnson cutting its dividend, which yields an attractive 3%.