Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / How Johnson & Johnson Dividends Lead in July 2026
Transcript
- Lucas: Luna, I have been staring at the five-day returns in the dividend space, and one name is just leaping off the screen. Johnson & Johnson — up over five percent in the last five trading days, while the S&P 500 is basically flat. Luna: That is a serious divergence. JNJ is not exactly a high-beta momentum stock. It's a healthcare giant with a 2.9 percent yield and a sixty-year streak of dividend increases. Lucas: Exactly. And that streak is the key. In a market where the ten-year Treasury is yielding 4.48 percent and the curve is steepening — the spread between the ten-year and two-year is now thirty-six basis points — investors are rotating into quality and predictability. Luna: So JNJ's dividend growth streak is acting as a signal of stability, even though its yield is lower than what you'd get from Verizon or Altria. Lucas: Right. Verizon yields around 5.5 percent, Altria even higher. But look at their five-day performance: Verizon up just 0.6 percent, Altria up 1.4 percent. Meanwhile, JNJ is up 5.2 percent. Procter & Gamble is up 4.2 percent. Coke is up 3.4 percent. Luna: So the market is rewarding companies with reliable dividend growth and defensive earnings, not just the highest yield. That's a classic steep-curve trade, isn't it? Lucas: It is. When the yield curve steepens — which it has been, with the ten-year yield rising faster than the two-year — long-term bonds become more attractive. That puts pressure on high-yield stocks that compete with bonds. But stocks with growing dividends and pricing power, like JNJ and PG, can still generate total returns that beat bonds. Luna: And JNJ has that rare combination: a low beta, a high credit rating, and a business that sells things people need regardless of the economy. Lucas: Exactly. Their pharmaceutical and medical device segments provide steady cash flow. Their consumer health business has brand pricing power. So when the market gets nervous about rate volatility, capital flows into names like JNJ. Luna: Now, the ETF data tells a similar story. VYM, the Vanguard High Dividend Yield ETF, is up 1.7 percent over five days. SCHD, the Schwab US Dividend Equity ETF, up 2.6 percent. Both beating the S&P 500. Lucas: SCHD has a slightly higher tilt toward quality and dividend growth, which helps explain the outperformance. Its top holdings include JNJ, Coca-Cola, and Procter & Gamble. VYM has more exposure to utilities and telecoms, which have been more mixed. Luna: It is almost like the market is drawing a line between dividend growers and high-yield traps right now. Lucas: I think that's fair. And it ties back to something we have discussed before: the duration problem with dividend stocks. High-yield stocks with no dividend growth behave like long-duration bonds — they get hurt when yields rise. Dividend growers, on the other hand, have earnings growth that can offset the interest rate headwind. Luna: So JNJ is the poster child for that argument. Its dividend has grown at a compound annual growth rate of about 5.6 percent over the past decade. The yield may be 2.9 percent, but the total return potential from that growth is significant. Lucas: And its payout ratio is reasonable — around 45 percent of earnings per share. That gives it room to keep raising dividends even if earnings slow. Compare that to Verizon, which pays out over 50 percent of its earnings, or Altria, which is over 80 percent. Luna: That is a crucial point. A high payout ratio leaves little margin for error. If earnings dip, the dividend is at risk. Lucas: Now, I want to zoom in on JNJ's specific numbers. As of this week, its stock is at $267.24. That is near its 52-week high. The dividend is $1.24 per share per quarter, which works out to $4.96 annually. So the yield is about 1.85 percent on a trailing basis? Wait, that doesn't match. Luna: I think you might be looking at the old dividend. JNJ raised its dividend in April 2026 by 4.7 percent, to $1.26 per quarter. That gives an annualized $5.04, which at $267.24 is about 1.89 percent. Lucas: Right, thank you. So the yield is actually below two percent? But earlier we said 2.9 percent. I'm conflating something. Luna: The 2.9 percent yield you mentioned might be from a few years ago when the stock price was lower. At current prices, the yield has compressed because the stock has appreciated. That itself is a sign of strength — yield compression usually happens when the market is bidding up the stock. Lucas: Good catch. So the current forward yield is about 1.9 percent. That is still competitive with the ten-year Treasury if you factor in dividend growth. And the market is clearly willing to pay up for that growth. Luna: It is worth noting that the broader market is not uniformly strong. The Nasdaq is down 1.5 percent over the past five days, and the Russell 2000 is down 1.4 percent. So money is rotating out of growth and small caps into quality large caps. Lucas: That rotation benefits JNJ and other dividend growers. And it is happening against a backdrop where the Fed funds rate is flat at 3.63 percent, and the ten-year yield is at 4.48 percent. The real yield — adjusting for inflation — is still positive, which supports the case for bonds, but dividend growers are holding their own. Luna: So for an income investor, the takeaway is: don't just chase the highest yield. Look at the dividend growth history, the payout ratio, and the business quality. Lucas: Exactly. And JNJ is a textbook example. It has raised its dividend for 60 consecutive years. It is a Dividend King. That kind of track record commands a premium, especially when the yield curve is flashing caution signals. Luna: We should also mention that the data we are using is live as of July 8, 2026, so listeners can check these numbers themselves. The five-day return for JNJ is 5.2 percent, while the Dow is up 1.2 percent. Lucas: That is a significant outperformance. And it is not just one stock. SCHD, the dividend growth ETF, is up 2.6 percent in five days. VYM, which is more yield-focused, is up 1.7 percent. The pattern is consistent. Luna: One thing that surprises me is that Realty Income, ticker O, is up 3.3 percent over five days. That is a triple-net lease REIT with a monthly dividend. Its yield is around 4.2 percent, and it has a long history of dividend growth. Lucas: Realty Income is another good example of a dividend growth story. It has increased its dividend for over 25 years. And REITs are required to distribute most of their income, so they tend to have higher yields. But O's payout ratio is reasonable, and its portfolio of retail and industrial properties is diversified. Luna: So the common thread across these winning dividend stocks — JNJ, PG, KO, O — is that they all have consistent dividend growth and a business model that can generate cash through economic cycles. Lucas: And they all have payout ratios below 70 percent, which gives them flexibility. That is the key metric we keep coming back to. If a company is paying out more than 80 percent of its earnings as dividends, it is vulnerable. Luna: Now, one question listeners might have: should they buy JNJ at these levels after a 5 percent run-up? Lucas: That is the million-dollar question. I don't give buy or sell recommendations, but I would point out that JNJ's valuation is not cheap. Its price to earnings ratio is around 18 times forward earnings, which is above its five-year average of about 16. So it is not a bargain. But for a long-term dividend growth investor, timing the entry is less important than the compounding over decades. Luna: And if you are investing for income, the dividend growth rate matters more than the starting yield. JNJ has grown its dividend at about 5.6 percent annually. Over ten years, that turns a 1.9 percent yield into a 3.2 percent yield on cost. Lucas: Exactly. And that is why dividend growth investing works. You are not just getting income today; you are getting income that grows faster than inflation. In a world where the ten-year yield is 4.48 percent, that growth premium is valuable. Luna: And if we think about the broader portfolio context, having a core position in dividend growth stocks like JNJ can provide stability when the market gets choppy. The Nasdaq selloff this week is a reminder that growth stocks are vulnerable to rate changes. Lucas: Right. And the dividend growth approach is inherently defensive. Companies that consistently raise dividends tend to have strong balance sheets and competitive advantages. That is why we focus on them on this show. Luna: Speaking of the show, we should mention that we keep it ad-free because we want to provide unbiased analysis. If you find value in these conversations, you can support the show at buy me a coffee dot com slash fexingo. That helps us stay independent and focused on the data. Lucas: Absolutely. No ads, no sponsors, just the numbers and the context. Your support makes that possible. Now, back to JNJ — one more metric I want to highlight is its return on equity, which is over 25 percent. That indicates a high-quality business that generates strong returns on reinvested capital. Luna: And that return on equity supports the dividend growth. If the company can earn 25 percent on retained earnings, it can afford to raise the dividend while still funding growth. Lucas: Exactly. So JNJ is a compounder. And in a market that is nervous about rates and growth, compounders get rewarded. That is the story of July 2026 so far. Luna: To sum up for listeners: when the yield curve steepens and bonds become more competitive, look for dividend stocks with low payout ratios, long growth streaks, and high returns on equity. JNJ checks all those boxes. Lucas: And the data we pulled today — July 8, 2026 — confirms that the market is paying a premium for those qualities. We will keep tracking this and bring you more insights next time. Luna: Until then, keep your dividends growing.