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Warren Buffett, one of the most successful dividend investors in history, owes much of his financial success to a simple but effective strategy: dividend reinvestment programs (DRIPs). This approach harnesses the power of compounding by reinvesting dividend earnings back into the stock, creating a snowball effect that can grow an investment significantly over time.
Long-term dividend investors can leverage the DRIP strategy to build substantial wealth, and Johnson & Johnson (NYSE: JNJ) is a prime candidate for those looking to become dividend millionaires in a decade or so.
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Why Johnson & Johnson?
Johnson & Johnson, a global healthcare giant, has long enjoyed a reputation for stability, consistent dividend payments, and a robust business model. Despite challenges such as recent legal battles and the spinoff of its consumer healthcare division, the company remains a solid choice for dividend investors due to its diversified revenue streams across pharmaceuticals, medical devices, and consumer healthcare products.
The company has a history of rewarding its shareholders, with a dividend yield of approximately 2.85% and a five-year dividend growth rate of 6.04%. This consistent dividend growth, combined with the resilience of its share price, makes J&J an attractive option for those looking to leverage the power of compound dividends.
Projected growth over 10 years
As the chart below shows, an initial investment of $50,000 in Johnson & Johnson, with monthly add-ons of $500, could grow to over $1 million by 2034, assuming the stock maintains its current annual dividend growth rate of 6.04% and an expected share price growth rate of 8% per year.
|
Year |
Shares held |
Starting price of the stock |
Year-end dividend after taxes |
Final balance after taxes |
|
2024 |
261 |
$192.44 |
$1,321.90 |
$52,000 |
|
2025 |
288 |
$207.84 |
$1,568.32 |
$69,635 |
|
2026 |
318 |
$224.47 |
$1,868.83 |
$91,102 |
|
2027 |
351 |
$242.43 |
$2,230.64 |
$117,208 |
|
2028 |
387 |
$261.82 |
$2,661.54 |
$149,036 |
|
2029 |
426 |
$282.75 |
$3,170.67 |
$187,960 |
|
2030 |
469 |
$305.32 |
$3,768.40 |
$235,750 |
|
2031 |
516 |
$329.66 |
$4,466.36 |
$294,599 |
|
2032 |
566 |
$355.91 |
$5,277.32 |
$367,247 |
|
2033 |
621 |
$384.23 |
$6,215.10 |
$457,035 |
|
2034 |
681 |
$414.76 |
$7,294.72 |
$567,969 |
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Recent performance and outlook
Johnson & Johnson shares have been a steady performer, with recent gains driven by strong financial results and the company’s strategic focus on high-growth areas such as oncology and immunology. The separation of its consumer health division, Kenvue, has allowed J&J to focus on its core businesses, which could lead to better long-term growth prospects.
Institutional investors are also showing confidence in Johnson & Johnson. In the first half of 2024, Vanguard increased its holdings by 2.5 million shares, while BlackRock added 1.8 million, indicating strong institutional support for the company’s future growth.
Analysts remain optimistic about Johnson & Johnson’s future, with several raising their price targets following the Kenvue spinoff. The company’s strong pipeline of new drugs, particularly in oncology, should drive revenue growth. In addition, J&J’s ongoing legal resolutions should alleviate some uncertainty, further stabilizing the stock.
Diversification with high-yield alternatives
While Johnson & Johnson offers a solid solution for building wealth through dividends, investors should also consider diversifying their portfolios with high-yield alternatives. Two options worth exploring are the Ascent Income Fund and the Arrived Private Credit Fund.
The Ascent Income Fund seeks to generate stable income from senior commercial real estate debt positions, delivering a historical distribution yield of 10.38% backed by real assets. This fund is a strong complement to dividend investments by offering payment priority and flexible liquidity options.
Similarly, the Arrived Private Credit fund simplifies investing in short-term financing of real estate projects, offering attractive returns secured by quality residential real estate. With targeted annualized dividends of 7-9%, this fund is an excellent way to balance risk and reward in a diversified investment strategy.
By investing in Johnson & Johnson and taking advantage of dividend compounding, while exploring high-yield alternatives like the Ascent Income Fund and Arrived Private Credit Fund, investors can create a resilient, income-generating portfolio that can withstand a variety of market conditions. This approach can pave the way to becoming a dividend millionaire within the next decade.
This article Invest $50,000 in Johnson & Johnson to Become a Dividend Millionaire in 10 Years originally appeared on Benzinga.com
