Chevron Corporation (CVX) vs. Johnson & Johnson (JNJ): Which Dow Jones Industrial Average (.DJI) Stock’s Dividend Dominates?

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Round five: flexibility
A company — even one as well positioned as either of these — needs to manage its cash wisely to ensure that there’s enough available for tough times. Paying out too much of its free cash flow in dividends could be a warning sign that the dividend is at risk, particularly if business weakens. This next metric analyzes just how much of their free cash flows our two companies have paid out in dividends over the past four quarters:

CVX Cash Div. Payout Ratio TTM Chart

CVX Cash Div. Payout Ratio TTM data by YCharts

Winner: Johnson & Johnson, 2-2.

We’ve got to have a tiebreaker, as each company has posted two victories at the end of our five-round contest. Let’s take a look at their debt-to-equity ratios, which can help us figure out how much flexibility each company really has with its cash:

CVX Debt to Equity Ratio Chart

CVX Debt to Equity Ratio data by YCharts

Winner: Chevron, 3-2.

Chevron Corporation (NYSE:CVX) pulls ahead, but just barely, after our overtime round. Don’t discount Johnson & Johnson (NYSE:JNJ), though — its superior free cash flow gives its dividend the appearance of greater sustainability, despite its ultimate loss today. Do you agree with this analysis, or would you rather own a drugmaker than an oil driller?

The article Chevron vs. Johnson & Johnson: Which Dow Stock’s Dividend Dominates? originally appeared on Fool.com and is written by Alex Planes.

Fool contributor Alex Planes has no position in any stocks mentioned. The Motley Fool recommends Chevron and Johnson & Johnson and owns shares of Johnson & Johnson.

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