Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / Why Johnson & Johnson Dividends Lead in July 2026
Transcript
- Lucas: So Johnson & Johnson just had a five-day run that caught my attention — up 5.2 percent through yesterday's close, while the S&P 500 barely budged, up a tenth of a percent. Luna: That's a big divergence. What's driving it? Lucas: I think it's a classic defensive rotation. The ten-year Treasury is still at 4.48 percent, the yield curve is only 35 basis points from inversion — basically flat. And when the macro picture gets foggy, money flows to quality. JNJ is about as quality as it gets in the dividend space. Luna: Makes sense. And the dividend yield on JNJ is around 3.4 percent, which looks pretty good next to 4.48 on the ten-year, especially if you expect rates to come down. Lucas: Exactly. That spread — about 100 basis points between the ten-year and JNJ's yield — is actually narrow by historical standards. But the difference is, bonds don't grow their payouts. Johnson & Johnson has raised its dividend for 63 consecutive years. That's a guarantee of future income growth that no bond can match. Luna: Right. And I think a lot of investors are starting to price that in again. The last couple years, when rates were climbing fast, dividend stocks got crushed because bonds were suddenly competitive. Now rates have plateaued, and the narrative is shifting back to income durability. Lucas: Yeah. And look at what else happened this week — the small-cap Russell 2000 dropped 1.4 percent, the Nasdaq fell 1.5 percent. Money rotated out of speculative growth and into names like JNJ, Procter & Gamble up 4.2 percent, Coke up 3.4 percent. Real estate investment trusts too — Realty Income, ticker O, gained 3.3 percent. That's a classic defensive bid. Luna: But not all dividend stocks participated. Verizon was only up 0.6 percent, Altria up 1.4 percent. So it's not a blanket 'buy all dividends' trade. Lucas: That's the key distinction. The market is being selective. Verizon and Altria have high yields — around 6 and 8 percent respectively — but they also have high payout ratios and shrinking earnings bases. Verizon's payout ratio is over 50 percent, but its revenue has been flat to down. Altria's cigarette volumes keep declining. The market is rewarding companies that can actually grow their dividends, not just ones that offer a big coupon today. Luna: And JNJ's payout ratio is around 45 percent, which gives it plenty of room. Plus their pharmaceutical pipeline is solid, and their consumer health business generates steady cash flow. Lucas: Right. And this is where I think dividend ETFs can be a bit of a trap if you don't look under the hood. VYM, the Vanguard High Dividend Yield ETF, is up 1.7 percent over the last five days. SCHD, the Schwab U.S. Dividend Equity ETF, up 2.6 percent. DVY, the iShares Select Dividend ETF, up 2.2 percent. All decent, but not as good as owning JNJ directly. Luna: Because the ETFs also hold the weaker names. VYM has a big position in Verizon and Altria, for example. So you get dragged down by the stocks that aren't participating in this rotation. Lucas: Exactly. And that's been a consistent theme this year. The quality factor inside dividend ETFs has been quietly shifting. SCHD has a methodology that screens for dividend growth and financial strength, so it tends to avoid the highest-yield, lowest-quality names. That's why it's outperformed VYM year-to-date. But even SCHD has exposure to sectors that are under pressure. Luna: It's a good reminder that dividend investing isn't just about yield. You have to look at the business underneath. Lucas: And that's actually something I think about a lot with this show. If our conversations have helped you think about a decision differently — maybe you looked at a company's payout ratio before buying, or you decided to hold a dividend stock through a rate hike — that's the kind of thing that makes a real difference. And it's also what keeps this show going. A couple of dollars a month from listeners is genuinely what keeps these episodes ad-free. It's at buy me a coffee dot com slash fexingo, if you've gotten something out of them. Luna: Yeah, it's a small thing that adds up. And it lets us keep the focus on specific analysis like this JNJ example, rather than chasing broad market headlines. Lucas: Exactly. So back to JNJ — the other thing I find interesting is that this move isn't just about defensive rotation. It's also about relative value. JNJ's price to earnings ratio is around 16, which is below its five-year average of about 18. So you're getting a quality company at a discount, with a growing dividend. Luna: And the earnings are actually growing. Last quarter, they beat estimates on both revenue and earnings per share, driven by their pharmaceutical segment. That's a far cry from Verizon, where earnings have been declining. Lucas: Right. So if you're an income investor, the question is: do you want a 6 percent yield that might get cut, or a 3.4 percent yield that you can reasonably expect to grow by 5 to 7 percent per year? Over a decade, that compounding makes a huge difference. Luna: And it's not just JNJ. You see the same dynamic in Coke, Procter & Gamble, and other dividend aristocrats. They all have that combination of reasonable payout ratios, strong brands, and global diversification. Lucas: Let me put a number on it. If you invested $10,000 in JNJ ten years ago, reinvesting dividends, you'd have about $22,000 today. That's a 7.4 percent annualized return. If you'd put that same $10,000 in Verizon, you'd have about $12,000 — a 1.8 percent annualized return. The difference is entirely about dividend growth and earnings power. Luna: That's a stark example. And it's why I think the current rotation toward quality dividend stocks is more than just a short-term trade. It reflects a longer-term reassessment of what income is actually sustainable. Lucas: I agree. The macro environment — with the Fed holding at 3.63 percent, the yield curve flat, and the economy showing mixed signals — favors companies that can self-fund their dividends. JNJ generates over $20 billion in free cash flow annually. That's more than enough to cover its dividend, which costs about $12 billion per year, and still have plenty left for acquisitions and R&D. Luna: And that balance sheet strength is exactly what the market is rewarding right now. It's not just about the yield — it's about the confidence that the dividend will be there tomorrow. Lucas: So if you're listening and you own dividend ETFs, it might be worth checking your holdings. Are you tilted toward the JNJs of the world, or the Verizons? Because this rotation could continue as long as the yield curve stays flat and growth expectations remain cautious. Luna: And if you're thinking about adding a position, JNJ looks attractive here. But always do your own research — payout ratio, free cash flow coverage, debt levels. Those are the metrics that matter. Lucas: Yeah. And keep an eye on the ten-year. If it starts climbing back toward 5 percent, that could put pressure on all dividend stocks again. But for now, quality is winning. Luna: And we'll keep tracking it. Next episode, I want to look at one of the higher-yielding names that's getting left behind — see if there's any value there or if the market is right to be skeptical. Lucas: Sounds like a plan. Until then, take a look at your own portfolio and ask: does my dividend have a moat?