The higher-than-anticipated inflation report showed that January’s Consumer Price Index (CPI) slowed only slightly to a 6.4% annualized gain. Moreover, the U.S. employment report showed that the labor market is running hotter than expected.

The combination of significant retail sales growth of 3%, robust hiring, and a smaller-than-expected drop in inflation could accelerate the pressure on the Fed to keep higher rates for some time. 

Kayla Bruun, an economic analyst at Morning Consult, said, “Although resilient consumer spending is a positive sign for the health of the economy, renewed demand for supply-constrained categories could add to inflation pressures, potentially eliciting more aggressive action from the Fed.”

Furthermore, several Fed officials cautioned that stricter measures might be in order, even if they raise the risk of a recession later in the year. Economists worry that such tenacious rate hikes could tip the economy into a recession. This could induce considerable volatility in the market. 

Given this backdrop, we think quality dividend-paying stocks Johnson & Johnson (JNJ) and Cisco Systems, Inc. (CSCO) might be solid additions to your portfolio.

Johnson & Johnson (JNJ)

JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. The company operates through the broad segments of Consumer Health; Pharmaceuticals; and MedTech.

On December 22, 2022, JNJ announced that it had completed its acquisition of Abiomed, Inc. (ABMD), a heart, lung, and kidney support technologies company, for an enterprise value of approximately $16.60 billion. This acquisition is expected to broaden JNJ’s MedTech segment’s position as a cardiovascular innovator.

On January 3, 2023, JNJ declared a dividend for the first quarter of 2023 of $1.13 per share on its common stock, payable to shareholders on March 7, 2023. JNJ has raised dividends for 60 consecutive years. This reflects its cash generation abilities.

Its annual dividend of $4.52 yields 2.82% on prevailing prices. The company’s dividend payouts have increased at a 6% CAGR over the past three years and a 6.1% CAGR over the five years. JNJ’s four-year average dividend yield is 2.60%.

JNJ’s trailing-12-month gross profit margin of 67.36% is 21.4% higher than the industry average of 55.48%. Its trailing-12-month EBITDA of 34.46% is 824.9% higher than the 3.73% industry average.

For the fiscal fourth quarter of 2022, JNJ’s reported sales came in at $23.71 billion.  Its non-GAAP adjusted net earnings rose 9.5% year-over-year to $6.22 billion. The company’s non-GAAP adjusted net earnings per share rose 10.3% from its year-ago value to $2.35.

For the fiscal first quarter ending March 2023, the consensus EPS estimate is $2.52. Its revenue is expected to increase marginally year-over-year to $23.58 billion for the same quarter. Additionally, JNJ topped consensus EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 2.1% intraday to close its last trading session at $160.39.

JNJ’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

JNJ is rated an A for Stability and Quality and a B for Value. Within the Medical – Pharmaceuticals industry, it is ranked #6 out of 174 stocks.

Click here to see additional POWR Ratings for Momentum, Growth, and Sentiment for JNJ.

Cisco Systems, Inc. (CSCO)

CSCO manufactures and sells Internet Protocol-based networking and other products related to the communications and information technology industry. The company serves businesses of various sizes, governments, public institutions, and service providers.

Recently, CSCO declared a quarterly dividend of $0.39 per common share, up 3% over the previous quarter’s dividend. This dividend is scheduled to be paid to all stockholders on April 26, 2023. This reflects the shareholder return ability of the company.

Its annual dividend of $1.56 yields 3.07% on prevailing prices. The company’s dividend payouts have increased at a 2.8% CAGR over the past three years and a 5.6% CAGR over the past five years. CSCO’s four-year average dividend yield is 2.99%. JNJ has increased its dividend in each of the past 11 years.

On February 7, 2023, CSCO introduced powerful new cloud management tools for industrial IoT applications, simplified dashboards to converge IT and OT operations, and flexible network intelligence to see and secure all industrial assets. With these innovations, the company should provide greater network visibility and control.

CSCO’s trailing-12-month net income margin of 21.26% is 636.2% higher than the industry average of 2.89%. Its trailing-12-month ROCE of 27.92% is 487.3% higher than the 4.75% industry average.

For the fiscal second quarter that ended January 28, 2023, CSCO’s total revenue increased 6.9% year-over-year to $13.59 billion. The company’s non-GAAP net income increased 2.6% year-over-year to $3.64 billion. CSCO’s non-GAAP EPS for the quarter increased 4.8% from the prior-year period to $0.88.

For the fiscal year ending 2023, the company expects its revenue to grow between 9% and 10.5% year-over-year. Its non-GAAP EPS is expected to come between $3.73 and $3.78 for the same period. For the third quarter of fiscal 2023, CSCO expects revenue to grow between 11% and 13% year-over-year and non-GAAP EPS to come between $0.96 and $0.98.

For the fiscal third quarter ending April 2023, analysts expect CSCO’s revenue to come in at $14.40 billion, representing an increase of 12.2% year-over-year. For the same quarter, the consensus EPS estimate of $0.97 indicates an 11.6% year-over-year increase. The company surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 9.3% over the past month to close its last trading session at $50.77. Moreover, it has gained 5.4% over the past five days.

CSCO’s POWR Ratings reflect its solid prospects. CSCO has an overall A rating, which translates to a Strong Buy in our proprietary rating system.

CSCO has an A grade for Quality and B for Stability and Sentiment. Within the Technology – Communication/Networking industry, it is ranked #3 out of 50.

Click here to see the additional POWR Ratings for CSCO (Growth, Value, and Momentum).

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JNJ shares were unchanged in premarket trading Monday. Year-to-date, JNJ has declined -8.55%, versus a 6.49% rise in the benchmark S&P 500 index during the same period.

About the Author: Sristi Suman Jayaswal

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...

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