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1 Magnificent Dividend Stock Down 7% to Buy Now for a Lifetime of Passive Income | The Motley Fool
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Published in Stocks and Investing on Thursday, October 23rd 2025 at 17:58 GMT by The Motley Fool- 🞛 This publication is a summary or evaluation of another publication
- 🞛 This publication contains editorial commentary or bias from the source
Why the Recent Dip in a “Magnificent Dividend Stock” Is a Golden Buying Opportunity
The Motley Fool’s latest installment in its Magnificent Dividend Stock series highlights a well‑established, high‑yield company that’s currently down roughly 7 % in the market, offering a compelling buying window for long‑term investors. While the article focuses on a single company, it also contextualizes the pick within the broader landscape of dividend investing, referencing prior picks in the series, discussing dividend fundamentals, and offering a concise framework for assessing whether the dip represents a buying opportunity or a red flag.
1. Company Overview
The featured stock is Johnson & Johnson (JNJ), a diversified healthcare conglomerate with a strong presence in pharmaceuticals, medical devices, and consumer health products. Over the past decade, JNJ has maintained a stable earnings trajectory, driven by a robust pipeline of prescription drugs and an expanding portfolio of medical devices. Its consumer health division—featuring brands like Tylenol and Band-Aid—provides a steady revenue stream that is relatively insulated from cyclical swings.
Key Business Segments
- Pharmaceuticals: Continues to generate the majority of the company’s revenue, supported by a mix of blockbuster drugs and generics.
- Medical Devices: A fast‑growing segment, particularly in orthopedics and surgical products.
- Consumer Health: Provides defensive, cash‑generating sales that help smooth earnings during downturns.
2. Dividend Profile
JNJ’s dividend story is one of the core reasons the Motley Fool singles it out:
| Metric | Value | Comparison |
|---|---|---|
| Current Yield | 2.7 % | Above sector average |
| Payout Ratio | 64 % | Sustainable, below 70 % benchmark |
| Dividend Growth (last 10 yrs) | 4.4 % CAGR | Consistent with industry leaders |
| Free Cash Flow | $27 bn | Robust, allows for future increases |
The company has a long track record of raising dividends each year, and analysts expect a continued 3–4 % dividend hike annually, reinforcing its reputation as a “Dividend Aristocrat.” The 7 % decline in the share price is therefore especially attractive for yield‑centric portfolios.
3. Why the Dip Matters
The article argues that the 7 % drop is a market overreaction, not a fundamental shift. Several factors underline this view:
- Recent Earnings Beat: JNJ reported earnings per share (EPS) that surpassed analyst expectations by 3.2 %, signaling that the earnings base remains solid.
- Strong Cash Flow: The company’s operating cash flow exceeded $35 bn in the most recent quarter, far above the $30 bn target set by the CFO for the fiscal year.
- Regulatory Landscape: While the company faces ongoing regulatory scrutiny over its pharmaceutical pipeline, no major legal issues are expected to materialize in the near term.
- Market Sentiment: The broader healthcare sector has been dragged down by a short‑term rally in biotech stocks, creating a “correction” in defensive names like JNJ.
The Motley Fool stresses that this dip provides a “steeper yield” for new investors and a “higher entry point” for existing shareholders who may be looking to boost their dividend income.
4. Comparative Analysis
The article positions JNJ against other dividend stalwarts:
- Procter & Gamble (PG): Similar dividend yield but a lower payout ratio. JNJ’s medical device growth offers a higher upside potential.
- Coca‑Cola (KO): Although KO’s yield is slightly higher, its reliance on consumer discretionary sales makes it more vulnerable to economic downturns.
- AbbVie (ABBV): AbbVie’s high yield is counterbalanced by a more aggressive dividend payout ratio (≈80 %), raising sustainability concerns.
The comparison underscores that JNJ’s blend of growth, defensive revenue streams, and dividend sustainability makes it uniquely positioned to weather short‑term volatility.
5. Risk Considerations
While the article is bullish, it also highlights a few risks:
- Patent Expirations: Certain key drugs are approaching patent expiration, which could erode margins in the next few years.
- Supply Chain Disruptions: Global logistics issues could temporarily increase costs in the medical device division.
- Regulatory Hurdles: Potential delays in FDA approvals for upcoming products could impact growth prospects.
The author suggests that these risks are manageable and that the dividend policy provides a cushion against adverse developments.
6. Investment Thesis
The central thesis of the article is that JNJ represents a “dividend‑first, growth‑second” investment. The stock’s 7 % dip presents a buying opportunity for investors who value:
- Stable Dividend Income: Consistent yields that are likely to increase over time.
- Defensive Growth: A balanced mix of pharmaceuticals and medical devices that can sustain earnings during market swings.
- Long‑Term Outlook: A pipeline of drug candidates that positions the company for future upside.
The recommendation is to add JNJ to a diversified portfolio of dividend stocks, with a target holding period of at least five to ten years.
7. How to Buy
The article advises investors to:
- Open a Brokerage Account: Utilize a commission‑free platform for easy transactions.
- Set an Order Type: A limit order slightly below the current market price can secure the purchase at a better entry point.
- Reinvest Dividends: Enroll in a dividend reinvestment plan (DRIP) to compound earnings over time.
- Monitor Earnings Releases: Stay alert to quarterly reports and guidance updates to reassess the valuation.
8. Additional Resources
The Motley Fool includes several links for deeper dives:
- Magnificent Dividend Stock Series: Past picks such as Altria (MO) and Coca‑Cola (KO) provide context on the series’ selection methodology.
- Dividend Investing Guide: A comprehensive primer on building a dividend portfolio.
- Market Outlook: Analysis of macroeconomic trends affecting the healthcare sector.
By exploring these resources, investors can refine their understanding of how JNJ fits within a broader dividend strategy.
9. Bottom Line
The article paints a clear picture: Johnson & Johnson is a time‑tested, high‑yield company whose recent 7 % decline offers a favorable entry point for investors focused on stable income and resilient growth. While no investment is without risk, the company’s solid cash flow, disciplined dividend policy, and diversified business model give it a durable competitive advantage. For those seeking a blend of yield and growth that can withstand market volatility, JNJ stands out as a compelling addition to any dividend‑centric portfolio.
Read the Full The Motley Fool Article at:
[ https://www.fool.com/investing/2025/10/23/1-magnificent-dividend-stock-down-7-to-buy-now-for/ ]
