Is Johnson & Johnson the Best Dividend Stock for You?

If a company pays a dividend long enough, it becomes part of its identity. That's the case with healthcare standout Johnson & Johnson (NYSE: JNJ) , which has paid and raised its shareholder dividend for 62 consecutive years. It's among the longest streaks of any public company, making Johnson & Johnson a household name among investors.

However, a dividend alone doesn't make a stock suitable for every investor's portfolio.

So don't just buy shares because you know the name. Don't own the stock just because you can count on its dividend.

Instead, read this to find out if this Dividend King is the best dividend stock for you.

Johnson & Johnson pays arguably Wall Street's safest dividend

Investors looking for a dividend they can count on have found the right stock. Not only has Johnson & Johnson increased its dividend for 62 consecutive years, but the company's fundamentals signal the payout will be safe for the foreseeable future.

There are multiple ways to illustrate this. First, consider the dividend itself. Currently, Johnson & Johnson has a dividend payout ratio of 58%. In other words, the company pays just over half of its cash profits out as shareholder dividends. Johnson & Johnson's cash profits would need to drop substantially to create a scenario where the company couldn't afford the dividend with its annual profits.

Johnson & Johnson is a leading healthcare company that sells pharmaceutical products, medical devices, supplies, and equipment worldwide. The healthcare industry doesn't stop for recessions or pandemics. Additionally, Johnson & Johnson is a leading brand in the industry, so it routinely wins business. So, while no company is risk-free, historically speaking, Johnson & Johnson's business is remarkably resilient.

You can see that the company's annual sales haven't declined even 6% from their high, going back four decades:

JNJ Revenue (Annual) data by YCharts

You can go a step further; suppose Johnson & Johnson's revenue collapsed enough that it couldn't pay its dividend with cash flow. The balance sheet is a safety net for this scenario. Johnson & Johnson has almost $25 billion in cash and a AAA credit rating, one of just two public companies with such good credit. Cash flow could go to zero, and the company could pay its dividend for two years with cash on hand!

The company is facing litigation for its talcum-based baby powder, which will likely cost Johnson & Johnson billions of dollars in settlement payments. However, investors shouldn't panic; management has set aside money for potential damages , and most settlements pay out over time, so it's doubtful the litigation outcome would threaten the dividend.

The bottom line? Investors should enjoy a steady, growing dividend from Johnson & Johnson for the foreseeable future. That said, a reliable dividend doesn't automatically make it the best investment for everyone. So, who might this stock be best suited for?

You should buy Johnson & Johnson if...

Johnson & Johnson is an ideal stock for investors more concerned with stable, passive income than total returns. The stock offers a 3% starting yield, and its annual increase has averaged around 6% over the past decade. Not only do you enjoy passive income, but it grows faster than inflation, too. That makes the stock perfect for those who want to live off their dividends or reinvest them for more shares.

Are you worried about potential market volatility? Johnson & Johnson has you covered. The stock's beta is just 0.5, meaning it's far less volatile than the broader market. It won't go up as fast when the market does well, but it should also hold up better during market downturns. Any retiree or conservative investor should look hard at Johnson & Johnson for their portfolio.

You should not buy Johnson & Johnson if...

Are you trying to maximize your total investment returns? Perhaps outperform the broader market? Then Johnson & Johnson probably isn't the stock for you. The company is large and mature enough that it may not grow enough to keep up with the market. Analysts believe Johnson & Johnson will grow earnings by an average of 6% annually over the next three to five years. That's solid, and adding that 3% dividend helps, but it's probably not keeping up with other companies with better long-term growth prospects .

Justin Pope has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy .