2 Top Stocks to Buy Now for Years of Passive Income

2 Top Stocks to Buy Now for Years of Passive Income

When you invest for the long term, a good strategy is to add stocks from various industries with different growth qualities that complement each other. Dividend stocks generate one type of growth and can be a fantastic way to maximize your returns. They perform differently from growth stocks in varying market environments while providing some passive income to reinvest or use as you wish.

If you're on the hunt for great dividend stocks to buy and hold for five to 10 years or more, you don't have to look far. Here are two names to consider the next time you go shopping for dividend stocks.

1. Johnson & Johnson

Johnson & Johnson (NYSE: JNJ) is a long-standing member of an elite group of stocks that have been paying and raising dividends every year for decades. This pharmaceutical giant has paid (and raised) its dividend every year for 62 years consecutively. Its most recent dividend increase was 4.2% and pushed the per-share quarterly dividend to $1.24 per share. Given its share price, Johnson & Johnson's dividend yields around 3.4%. That's more than double the yield of the average stock (approximately 1.4%) trading on the S&P 500.

The above-average yield is partly because the stock has fallen out of favor with the market lately. Its ongoing talc litigation, which it is still in the process of resolving, and greatly reduced revenue from its COVID-19 vaccine have also affected some investors' appetite for the business. In terms of the talc litigation, the company recently reached a $700 million settlement with 43 states, over the marketing and manufacture of its talc products. Johnson & Johnson can manage that settlement cost without affecting its dividend.

Johnson & Johnson reported sales of $21 billion in 2024's Q1, up 2.3% year over year, with net earnings of $5.4 billion. Excluding the company's COVID-19 vaccine, its Innovative Medicine segment grew 8.3% year over year, while its MedTech segment saw net sales rise 6.3%. These are solid growth figures for a company at this level of maturity, with an extensive lineup of medicines and devices that span neuroscience, oncology, cardiovascular, and other specialties.

The company made some big changes to its business when it spun off its consumer health segment into a separate, publicly traded entity last year called Kenvue. That segment had been a slow growth element that dragged on Johnson & Johnson's overall growth, particularly as a company that derives the lion's share of revenue from its pharmaceutical business. To offer some perspective, in the full-year 2022, the last annual filing where the consumer health business was reported as an individual segment, it comprised about 16% of the revenue Johnson & Johnson reported that year.

The sale raised some capital for Johnson & Johnson while allowing it to retain a significant stake in Kenvue. But Kenvue has struggled a bit post-spin-off. Security filings submitted in May say Johnson & Johnson plans to divest the remainder of its stake in a debt-to-equity swap. Exiting Kenvue on the whole looks to be a good maneuver for the business as it looks toward the next era of growth.

Johnson & Johnson reported cash from operating activities of $3.7 billion in the most recent quarter, a 12% year-over-year bump. The company hasn't been known as a lightning-growth stock, so investors should know that ahead of time. Still, its successive dividend increases have made it a great passive-income stock for investors over the years, and that can be a compelling buying proposition when you're looking to hold a company for five, 10, or more years.

Johnson & Johnson is also a business with a certain level of resilience in all types of macroeconomic environments, given the industry it operates in. Even more to the point, its financials are rock solid. These are all compelling reasons to take a second look at this top healthcare stock and dividend powerhouse even if shares don't go to the moon.

2. Costco Wholesale

Costco Wholesale (NASDAQ: COST) has been a faithful dividend payer through the years. While its dividend yield is relatively low -- about 0.5% -- that is not uncommon when you have a stock that is performing extremely well. Its current dividend price per share is $1.16. Dividend yields invariably fall when the stock price goes up. Costco has also periodically paid out special dividends every three years or so, most recently in 2023 with a special dividend of $15 per share.

Even if its regular dividend is relatively low, Costco's total return is still enviable. While the S&P 500 delivered a total return (which includes reinvested dividends) of about 38% in the trailing three-year period, Costco stock delivered a total return of roughly 138%. Income-seeking investors who stay with the stock for years can benefit from its regular and special dividends, while benefiting from a stock with a history of delivering strong total returns.

Costco has proven time and time again the resilience of its core business model. From groceries to automotive supplies to toys to appliances, shoppers can access a wide assortment of products for the home and family through Costco's warehouses. Its wide selection of third-party brands as well as its own private-label Kirkland brand products help create its low-cost model.

While its warehouse model retail stores with selective product offerings sold in bulk help Costco operate efficiently, they aren't the only reasons it's able to steadily grow revenue and profits regardless of the broader economic situation. The secret sauce is Costco's membership system. Costco makes most of its sales from merchandise, but most of its profits come from membership dues.

In the first 36 weeks of the company's fiscal 2024, it reported approximately $175 billion in revenue. Of that total, $171 billion came from sales, while $3.3 billion came from membership dues. Its net income in that time frame was $5 billion, with the majority of that income coming from the very high-margin membership fees. Membership renewal rates are also exceptionally high, around 93% in the U.S. and Canada (Costco's largest markets) and just under 91% globally.

If its tried-and-true business, steady dividend income, periodic large special dividends, and long-term returns are what you are looking for in a passive income stock, Costco surpasses the mark on all counts.

Should you invest $1,000 in Johnson & Johnson right now?

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Rachel Warren has positions in Johnson & Johnson. The Motley Fool has positions in and recommends Costco Wholesale and Kenvue. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.