Unbridled enthusiasm for artificial intelligence stocks has pushed the Nasdaq Composite index 24% higher this year. Grizzled investors who’ve been through the wringer, though, remember how the same index of mostly growth stocks soared in 2021, too, before collapsing in 2022.
If you’re part of the growing consortium of individual investors who have had it with risky growth stocks, you should take a look at the Dow Jones Industrial Average. This index, which is comprised of healthy businesses that can produce positive cash flows in good economic times and bad, is down by about 1% this year.
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These two Dow stocks don’t have the explosive growth potential of some risky artificial intelligence stocks, but they offer something many investors find even more satisfying — dividend payments that you get to keep regardless of what happens to the stock price.
Here’s why these two relatively safe stocks have a great chance to deliver market-beating gains in the coming decade.
Johnson & Johnson
Johnson & Johnson (JNJ 1.57%), or J&J, is most famous for consumer health products, but that isn’t something this company does anymore. In May, the conglomerate spun off its consumer health segment into a new company called Kenvue. Now, J&J is entirely focused on medical technology and pharmaceuticals.
J&J may have cleaved off one of its operating segments, but it’s still a giant with enormous cash flows that allow it to make the most of any new business it brings into the fold. For example, the company recently spent $16.6 billion on Abiomed. This company makes the Impella brand of tiny pumps that keep a patient’s blood flowing during heart surgery.
Thanks to the Abiomed acquisition, first-quarter medical technology sales bounded 11% higher year over year at constant currency. This figure would have been just 6.4% without Abiomed’s contribution.
Over the past year, J&J generated a whopping $16.2 billion in free cash flow. That should be more than enough to keep acquiring new sources of growth like Abiomed and meet its rising dividend commitment. The company recently raised its payout for the 61st consecutive year, and the shares offer a 3.1% yield right now.
Apple
It’s been nearly 16 years since Apple (AAPL 0.48%) launched the iPhone. At $51.3 billion during its fiscal second quarter that ended April 1, sales are as strong as they’ve ever been.
Strong iPhone sales are encouraging, but they aren’t the main reason Apple is a great stock to buy and hold over the long run. It’s a great stock because an installed base of over 2 billion iPhones at the moment gives Apple an unprecedented opportunity to market services.
Services revenue reached a new quarterly sales record of $20.9 billion during the fiscal Q2, and we can likely look forward to a lot more in the quarters to come. Apple makes app developers and content producers pay dearly for access to its enormous customer base. The App Store earns a 15% to 30% commission on all in-app purchases and subscriptions.
In addition to commissions from third parties, Apple’s own services, such as Apple Music and iCloud, are growing by leaps and bounds. The company reported over 975 million paid subscriptions across its platform in its fiscal Q2. That’s 150 million more than it had a year earlier and nearly double the number it had three years ago.
Apple is about as shareholder-friendly as a company can get. It returned over $19 billion to investors during Q2 in the form of share buybacks, and its board of directors authorized an additional $90 billion. The stock also offers a 0.5% dividend yield at recent prices, and it’s raised the dividend for 11 years in a row.
Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.