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Building multiple passive income streams is a well-trodden path to early retirement. In practice, however, it can be seriously challenging to spot worthwhile passive income streams.
Tier 1 dividend stocks, or equities backed by companies with an unwavering commitment to rewarding shareholders through regular distributions and increases to the dividend, are a simple way to cut out the noise.
Many of these companies have been paying dividends for decades, and even better, growing the dividend for decades as well. Here is a brief overview of one Tier 1 dividend stock that is an excellent choice for any type of investor on the hunt for a generous and relatively safe passive income stream.
1 passive income vehicle every investor should own
One exemplary Tier 1 dividend stock is healthcare giant Johnson & Johnson (NYSE: JNJ). With a storied history of innovation and reliability in terms of dividend payments, J&J has established itself as a cornerstone in the portfolios of investors who prioritize long-term income generation. Speaking to this point, the healthcare company's 3.31% yield is more than double the average yield of S&P 500 listed companies, and it is one of the highest yields among blue-chip dividend stocks to boot.
Apart from its hefty yield, J&J stands out as a top passive income stock for four key reasons:
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Decades of dividend payments: J&J's exceptional free cash flow generation has allowed it to dole out consistent dividend payments to shareholders for decades, making it a highly reliable passive income stream.
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Consistent dividend growth: Not only has J&J been paying dividends, but it has also been increasing them for 62 straight years, showcasing the company's growth and commitment to rewarding loyal shareholders.
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Diversified revenue streams: As a leader in multiple healthcare industries such as pharmaceuticals and medical devices, J&J's diversified portfolio provides a buffer against economic uncertainty, further solidifying its position as a top-tier dividend stock.
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A rock-solid shareholder base: Despite J&J's talcum powder litigation headwind, the company still sports a 71% institutional ownership base as of this writing. Institutional investors tend to be long-term shareholders, which helps to lower share price volatility, increase liquidity, and power up demand for the stock.
What are the risks?
Even blue-chip healthcare stocks like J&J have some important risk factors investors should consider carefully. J&J's biggest risk factors include upcoming patent headwinds, increasing competition – especially in oncology, and a relatively weak late-stage pipeline compared to some of its closest peers.