2 Must-Buy Dividend Stocks When the Stock Market Falls

Dividend-paying stocks offer a great way to add liquidity to your portfolio and help compound your overall returns over time. Whether you use that dividend money to add to your portfolio or to cash it out, these types of stocks can help you diversify the types of companies in which you own shares.

When it comes to investing in dividend stocks, you need to ensure that the companies you buy have a strong underlying business and balance sheet that will support and help grow the dividends paid. A high dividend stock will also have a track record of maintaining and growing its dividend across a wide range of market environments.

With this in mind, here are two blue-chip dividend stocks to consider for your portfolio. Each of them performs well whether the bull market continues or bearish investor sentiment returns. If the bear market returns, these stocks have proven over the decades to be safe bets to hold.

1. Johnson & Johnson

Johnson & Johnson (NYSE:JNJ) has paid and increased its dividend every year for 62 years and counting. That puts the pharmaceutical giant in a very select group of companies that have earned the nickname King of dividends.

J&J has a forward dividend yield of 3.4%, more than double the average yield among S&P 500 shares. Over the past decade, Johnson & Johnson's dividends have increased by an average of 6% per year. Its payout ratio is 30%.

J&J's dividend helps offset the stock's relatively weak performance over the past few years. The stock's weak performance also goes some way to explaining the above-average yield. The stock is down due to several factors, but one of the most important is ongoing litigation and potential multibillion-dollar liabilities related to its talc products. The company has approximately $26 billion in cash on its balance sheet to help it manage these ongoing lawsuits and potentially pay settlements while meeting its commitment to shareholders.

Investing in Johnson & Johnson is also investing in a company that has been around for 138 years and is one of the largest pharmaceutical companies in the world by revenue. Over the past 12 months, the company generated more than $17 billion in profits on revenue of approximately $86 billion. It also generated approximately $24 billion in leveraged free cash flow over the past 12 months.

Last year, J&J spun off its slower-growing consumer health products segment into a company called Kenvue. The two remaining divisions — pharmaceuticals and medical devices — are growing faster and should help J&J ramp up its growth efforts in the coming years. The company has returned about 60% of its free cash flow to investors over the past five years, while 65% of its sales come from products for which it commands the No. 1 or No. 2 global market share.

The story continues

In the short term, this is probably not a play for growth investors. However, long-term investors looking for a company that generates consistent financial gains from a broad portfolio of valuable pharmaceuticals and medical devices may find Johnson & Johnson to be an attractive investment opportunity. With its stock price underperforming, Johnson & Johnson's dividend history makes the company an attractive pick for income-seeking investors. When the underlying issues, including costly litigation, are eventually resolved, stock prices will likely rise.

2. Coca-Cola

Coca-Cola (NYSE:KO) has a dividend yield of about 3% and has consistently raised its dividend every year for 62 years. The beverage giant isn't generating massive stock price gains these days, but its dividend and stock price increases have helped generate a total return of 46% over the past five years and more than 108% over the past 10 years.

Founded in 1886, the company now operates one of the largest beverage operations in the world. Coca-Cola controls approximately 46% of the U.S. soft drink market, one of its largest markets.

Over the past 12 months, Coca-Cola made profits of around $11 billion on revenue of $46 billion. It maintained a profit margin of around 23%, an exceptional figure in an industry where margins are historically thin. The company has a payout ratio of around 74%, which is relatively high but still quite manageable. Its dividend has increased by an average of 5% per year over the past decade.

In the last 12 months alone, the company generated operating cash flow of approximately $12 billion, with mobilized free cash flow of approximately $11 billion. Exchange rate fluctuations and a changing macroeconomic environment have impacted the company's growth in recent years, but its commitment to its dividend and balance sheet strength remain a testament to the resilience of this business.

Long-term investors looking for stable portfolio growth and dividends can find many benefits in Coca-Cola.

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Rachel Warren holds positions at Johnson & Johnson. The Motley Fool posts and recommends Kenvue. The Motley Fool recommends Johnson & Johnson and recommends the following options: Long January 2026 $13 calls on Kenvue. The Mad Motley has a disclosure policy.

2 Unstoppable Dividend Stocks to Buy in the Event of a Stock Market Liquidation was originally published by The Motley Fool