2 income stocks I think investors should buy in February

Stephen Wright has two income stocks on his radar this month. One is a dividend king and the other is part of Warren Buffett’s portfolio.

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Income stocks are very much in fashion right now. With the threat of a recession on the horizon, investors are looking for companies that have predictable earnings and can distribute a steady stream of dividend payments to shareholders.

I don’t think this is a bad plan. Businesses that have strong track records when it comes to dividend payments are often solid, well-run, and durable investments. 

Furthermore, I think that there are some attractive opportunities in dividend stocks for investors seeking passive income. Here are two that I’m looking at this month.

Johnson & Johnson

First is Johnson & Johnson (NYSE:JNJ). The stock fell 4% on Monday, but I think this presents a rare opportunity for investors.

The share price decline is due to the company’s move to evade cancer-related lawsuits being blocked by the courts. Obviously, the ongoing lawsuits present a risk with the stock.

Johnson and Johnson has around $6bn in reserves to deal with legal costs already, though. I therefore don’t think that having to face litigation is likely to be a material problem.

With that aside, there’s a lot to like about this stock for an income investor. The company has 60 years of dividend increases, averaging 5% annual growth over the last five years.

On top of that, J&J has an AAA credit rating. That’s higher than the UK — a country that can literally print its own money.

To my mind, Johnson & Johnson is a great stock for investors looking for passive income. And the recent share price decline puts it at the top of my list of dividend stocks to buy in February.

Kraft Heinz

I’m also looking at buying shares in Kraft Heinz (NASDAQ:KHC). The share price has gone almost nowhere in 2023 so far, so I’m looking to add to my investment in the company. 

There’s a risk that inflation could cut into the returns available to an investor. This is especially true since I’m not expecting huge growth from the business going forward.

At today’s prices, though, I don’t think this is a big danger. Inflation is already subsiding in both the UK and the US, and the current share price seems to be pricing in no growth.

Kraft Heinz has a total market value of $49.5bn. On top of this, it has $20bn in debt, which is partly offset by $1bn in cash.

The business generates $3.5bn in free cash flow each year. That amounts to a 5% return at today’s prices.

As well as paying a dividend (with a current yield of 4%) Kraft Heinz has been reducing its debt significantly. Total debt has been declining at around 8% per year since 2018.

This means the company’s balance sheet is improving, which should give it more flexibility in future.

Stocks I’m buying

With Johnson & Johnson, I think the market is overreacting to an uncertain threat. In the case of Kraft Heinz, I think the business is improving but the market hasn’t seen it yet.

Both stocks look like good investment opportunities to me. I think that both can be good choices for investors looking for passive income in February.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has positions in Kraft Heinz. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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