Volatility has gripped the markets in recent weeks, with larger swings in the S&P 500. Amid this greater volatility, investors may be looking for ways to reduce volatility in their own portfolios. One way to do this is by investing in high-quality dividend growth stocks, such as the Dividend Aristocrats.

Healthcare giant Johnson & Johnson (JNJ) is among the highest-quality Dividend Aristocrats that investors can buy and hold for years. The company dominates the healthcare industry and has rewarded investors with over 50 years of annual dividend increases.

J&J stock has a reasonable valuation, a solid 2.5% dividend yield, a long runway of dividend growth up ahead, and low stock volatility. This makes J&J a top dividend growth stock.

World-Class Business Fuels Dividend Growth

J&J has one of the longest streaks of annual dividend increases in the entire S&P 500 Index. The biggest reason for this is the company’s durable competitive advantage that has developed over the years, by dominating the healthcare industry. Whereas many healthcare companies focus on one specific area of the healthcare industry, such as pharmaceuticals, consumer health products or medical devices, J&J is diversified across all three. And, it has leadership positions in each category.

The end result is that J&J is an industry giant, with a highly profitable business model that has allowed the company to return excess cash to shareholders. With 2020 revenue of $82.58 billion and net income of $14.71 billion, J&J had a net profit margin of 17.8%. This is a very health profit margin and is representative of strong profitability ratios that are crucial to a company’s ability to grow its dividend over the long run.

Another key factor behind J&J’s long history of dividend increases is the company’s recession-resistant business model. As a diversified healthcare company, consumers rely on J&J’s products every year. People will always need their pharmaceuticals, health products and medical devices, even if the economy is in recession. This gives J&J a certain level of demand regardless of the economic environment. This has allowed J&J to remain highly profitable, and continue to grow its dividend each year, even when the U.S. has entered recessions.

A Long-Term Dividend Winner

Investors looking for a stable dividend growth stock for reliable returns should consider Johnson & Johnson. Johnson & Johnson has grown earnings over the past 10 years at a rate of 5.4%. The company managed to grow earnings before, during and after the last recession, showing that the company’s products are in demand regardless of market conditions. We expect earnings-per-share to grow at a rate of 6% per year through 2026 due to gains in revenue and share repurchases.

This is consistent with Johnson & Johnson’s earnings growth composition in the past, however, most growth will come from revenue expansion as the buyback is good for a low-single-digit gain annually.

On 4/20/2021, Johnson & Johnson announced a 5% dividend increase for the 6/8/2021 payment date, giving the company 59 consecutive years of dividend growth.

Dividends should continue to be increased in the years ahead, at least in-line with the company’s future earnings growth rate. With a 2021 expected dividend payout ratio of less than 50%, J&J’s dividend payout is highly secure, with plenty of room for future dividend increases.

Final Thoughts

Johnson & Johnson remains one of our favorite companies in the entire market due to its business model and nearly six decades of dividend growth. Income investors should consider making the stock a core position while total returns should be satisfactory over the long run.