Microsoft (MSFT -2.33%) and Johnson & Johnson (JNJ -1.64%) are leading companies in their respective industries. They both have impressive track records and have made their long-term shareholders significantly richer.
Some might worry that it’s too late to invest in these blue chip companies. Microsoft’s market cap is $2.6 trillion, so some detractors feel it has little room to grow. Meanwhile, Johnson & Johnson is still dealing with thousands of talc-related lawsuits, and recently hit another road bump in that department.
However, none of that means investors should avoid these corporations. Here’s why Microsoft and Johnson & Johnson are still worthwhile stocks for long-term, dividend-seeking investors.
1. Microsoft
Like many other tech leaders, Microsoft has manufacturing facilities in various countries to handle production on products like Surface computers, select versions of its software, and Xbox consoles, peripherals, and games. The tariffs the Trump administration is imposing (or temporarily pausing) could impact its production costs and lead to lower earnings than it otherwise would have generated. That’s on top of Microsoft’s increasing difficulty to grow at prior high rates going forward because of its already massive size.
To help it overcome these potential headwinds, the longtime tech specialist still generates plenty of cash flow, which should help it adapt to the new economic reality. For instance, it might consider beefing up its U.S. manufacturing capacity.
Data by YCharts.
Microsoft also benefits from a strong brand name that can allow it to pass higher costs on to consumers without losing much market share. The tech company has shown expertise at surviving — and thriving — for decades.
Furthermore, Microsoft still has significant growth prospects in services it offers that are less vulnerable to tariff headwinds, particularly in its cloud division, Azure. This unit has been one of the fastest-growing for the company for some time, and it’s only getting better thanks to artificial intelligence (AI).
As of the second quarter of its fiscal year 2025 (ended Dec. 31, 2024), Microsoft’s AI business boasted an annual run rate of more than $13 billion. While that seems like peanuts compared to the company’s quarterly revenue of $69.6 billion, total revenue only grew by 12% year over year. Microsoft’s AI run rate soared by 175% compared to the year-ago period. There is still massive growth space here.
Microsoft’s cloud computing and AI leadership should provide powerful long-term tailwinds; the company isn’t done growing. Its dividend also looks as safe as ever: Microsoft has increased its payouts by 168% over the past decade.
The share price has declined by 7% this year, so shrewd growth-focused and income-oriented investors should seriously consider taking this opportunity to buy the stock.
2. Johnson & Johnson
The Trump administration has (so far) spared the pharmaceutical industry from its tariffs. That may or may not last much longer, but for now, it means that part of Johnson & Johnson’s business (its bigger source of revenue) is temporarily safe from that issue.
However, the company attempted to settle thousands of lawsuits from plaintiffs who claim its talc-based products gave them cancer, via a bankruptcy maneuver from a subsidiary — and the most recent revised attempt was rejected by a judge earlier this month. J&J said it will not appeal the decision and will return to the tort system to defend itself, noting that it has won 16 of the last 17 cases involving ovarian cancer litigated in the past 11 years.
What should investors make of this? It isn’t the first time Johnson & Johnson has failed to resolve these lawsuits by filing bankruptcy for a subsidiary. One reason it hasn’t been able to do so is that, as a previous judge ruled, these lawsuits don’t put the company in financial distress, undercutting the rationale for bankruptcy.
Though it would have been good to move past this issue, even with these legal troubles, J&J’s underlying operations and balance sheet are incredibly strong. Along with Microsoft, it’s one of the two publicly traded corporations with a credit rating higher than that of the U.S. government.
Moreover, its pharmaceutical and medtech businesses remain strong. It generates steady revenue and profits, and boasts a deep pipeline of products that routinely leads to new approvals. Johnson & Johnson has a more than 100-year history during which it has made important breakthroughs; you can expect more of the same in the long run.
Lastly, the dividend program looks rock-solid. Johnson & Johnson has raised its payouts for 62 consecutive years, making it a Dividend King. The company should continue rewarding shareholders with dividend hikes for a long time.
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