I love earning regular income from my shares and here are two dividend stocks that could be some of the ‘safest’ around.
I think these two income shares look more reliable than most. Not that past performance is an indicator of future results, nor are dividends guaranteed.
Record order book
Defence giant BAE Systems (LSE: BA.) reported its highest-ever order intake last year as many countries around the world increased military spending. The £37bn of orders it took in throughout the year increased its backlog to £58.9bn.
And just last week, the Czech government approved a $2.2bn deal with the firm to buy 246 infantry fighting vehicles. These kind of deals have become commonplace over the last year, for obvious and unpleasant reasons.
This has been reflected in the share price, which is 66% higher than it was prior to Russia’s invasion of Ukraine. Yet despite this rise, the forward dividend yield stands at a very respectable 3%. Plus, the payout is covered two times by anticipated earnings.
The stock could presumably take a hit if Russia and Ukraine were to enter peace talks. But even if that hoped-for situation develops, I think it’s unlikely that the geopolitical tensions between the US and China would suddenly disappear. Especially considering the ongoing disagreement over Taiwan.
These tensions will likely keep military spending elevated and underpin demand for BAE’S products, which span air, land, sea, cyber and space.
As such, I’m going to keep holding the shares I bought six months ago. The long-term income prospects seem rock solid to me.
Huge scale
Johnson & Johnson (NYSE: JNJ) has increased its dividend for 60 straight years, which gives it the rare status of a Dividend King (at least 50 consecutive years of dividend increases).
While that doesn’t necessarily guarantee future success, it does underline the healthcare giant’s long-standing competitive prowess. Today, it’s the world’s largest, most diversified healthcare products company. And last year, that saw it bring in adjusted net earnings of $27bn.
Now, the company has faced well-publicised lawsuits relating to some of its products in recent years. It recently agreed to pay an $8.9bn settlement over claims that its talc-based baby powder caused certain types of cancer. If more such legal problems emerge, then that could threaten dividend growth.
However, the firm is profitable enough to absorb this huge sum. And despite the undoubted reputational damage from these headlines, J&J still ranked number one this year on Fortune’s most admired companies list for the pharmaceutical industry. Its medicines continue to save countless lives.
This year, J&J is spinning off its consumer health business. That could unlock further value as its two remaining segments (MedTech and Pharmaceutical) are more profitable and growing faster than consumer health.
Plus, the company’s $16.6bn acquisition of Abiomed (a global leader in heart pumps and valves) gives it a very strong competitive position in high-growth cardiovascular markets. This purchase means its medical devices division now includes 12 platforms with over $1bn in annual revenue.
The stock carries a dividend yield of 3%. Supporting the payout is a very stable profit margin of around 19%. I expect plenty more dividends to come yet. And if I had spare cash today, I’d consider investing in this incredible healthcare company.
