Dividend Aristocrats In Focus: Johnson & Johnson

Up to date on February thirteenth, 2023 by Samuel Smith

Johnson & Johnson (JNJ) is an organization that many traders are doubtless aware of. J&J has been in operation for greater than 130 years and has raised its dividend for 60 years in a row. It has one of many longest and most spectacular histories of any dividend development inventory.

J&J is a long-standing member of the Dividend Aristocrats. You’ll be able to see a full downloadable checklist of all 68 Dividend Aristocrats (together with essential monetary metrics equivalent to dividend yields and price-to-earnings ratios) by clicking the hyperlink beneath:


Not solely is Johnson & Johnson a Dividend Aristocrat, however additionally it is a Dividend King as properly. The Dividend Kings are an much more unique group of shares, with 50+ years of consecutive dividend will increase. There are simply 48 corporations which have achieved this accomplishment.

J&J has the entire qualities to search for in nice dividend development shares. It has a dividend yield above the S&P 500 common, backed by a robust model and extremely worthwhile enterprise mannequin, with potential for long-term development.

This text will talk about the quintessential Dividend Aristocrat that’s Johnson & Johnson.

Enterprise Overview

J&J is among the largest corporations on this planet, however it began from very humble beginnings. It was based all the way in which again in 1886 by three brothers, Robert, James, and Edward Johnson. In 1888, the three brothers printed a healthcare manuscript titled “Trendy Strategies of Antiseptic Wound Remedy”, which might rapidly grow to be the main customary for antiseptic surgical procedure methods.

Over the next many years, the corporate steadily introduced new merchandise to market. Quickly, the corporate was the main producer throughout a number of healthcare classes, together with child powder, sanitary napkins, dental floss, and extra.

At the moment, J&J is a world healthcare large. It has a market capitalization of $424 billion. J&J is a mega-cap inventory, a time period to explain shares with market caps above $200 billion. You’ll be able to see our mega-cap shares checklist right here.

At the moment, J&J manufactures and sells healthcare merchandise by three principal segments:

  • Prescription drugs
  • Medical Units
  • Client Well being Merchandise

It has a diversified enterprise mannequin, with sturdy manufacturers throughout its three core working segments. A breakdown of every section’s efficiency will be seen within the picture beneath:

Supply: Investor Presentation

On January twenty fourth, 2023, Johnson & Johnson launched fourth quarter and full 12 months earnings outcomes for the interval ending December thirty first, 2022. For the quarter, income declined 4.4% to $23.7 billion, which was $200 million lower than anticipated. Adjusted earnings-per-share of $2.35 in contrast favorably to $2.13 within the prior 12 months and was $0.11 greater than anticipated. For 2022, income grew 1.3% to $94.9 billion. Adjusted earnings-per-share totaled $10.15 in comparison with $9.80 within the prior 12 months. Unfavorable foreign money trade and decrease Covid-19 vaccine gross sales impacted outcomes. Excluding these elements, income grew 4.6%.

Johnson & Johnson launched steering for 2023 as properly. The corporate expects income in a spread of $96.9 billion to $97.9 billion and adjusted earnings-per-share of $10.45 to $10.65 for the 12 months. On the midpoints, this is able to be development of two.6% and three.9%, respectively.

Supply: Investor Presentation

Progress Prospects

Within the newest quarter, Pharmaceutical revenues fell 7.4% on a reported foundation (down 2.5% excluding foreign money trade), primarily on account of a pointy decline in Covid-19 vaccine gross sales. Infectious Ailments fell 36% because of this. Oncology was up 3.9% as Darzalex, which treats a number of myeloma, continues to extend market share. Imbruvica, which treats lymphoma, led in market share as soon as once more, however had declines on account of aggressive pressures. Immunology was down 5.4% (down 1.8% excluding foreign money) as market share positive aspects for Stelara, which treats immune-mediated inflammatory illnesses, was offset by unfavorable affected person combine and better rebates. Client income improved 1.0% (however grew 6.4% excluding foreign money trade) on account of power in OTC and a small achieve in Pores and skin Well being & Magnificence. Throughout companies had been down for the interval. MedTech was decrease by 1.2% (up 4.9% excluding foreign money trade) for the quarter, led by power in Interventional Options that was offset by weak spot in all different areas.

Acquisitions are one other development catalyst for the corporate. J&J isn’t any stranger to acquisitions, huge or small, to speed up its development. From 2016 to 2018, Johnson & Johnson spent greater than $40 billion on acquisitions, the most important of which was the $30 billion acquisition of Actelion, a stand-alone R&D firm. Actelion’s R&D focuses on uncommon circumstances with important unmet wants, equivalent to pulmonary arterial hypertension.

Johnson & Johnson’s large enterprise platforms and world attain present the corporate with sturdy aggressive benefits, which in flip have fueled its development over the previous a number of many years.

As well as, the corporate is within the midst of going by a serious shakeup of its enterprise mannequin. Introduced on 11/12/2021, Johnson & Johnson plans to spin off its shopper well being enterprise right into a standalone entity. Whereas this enterprise has been the face of the corporate for years, prescribed drugs and medical units contribute way more in income and web earnings yearly.

We mission that this transaction, which is anticipated to be accomplished in the course of 2023, will unlock worth for shareholders.

Aggressive Benefits & Recession Performance

Johnson & Johnson’s most essential aggressive benefit is innovation, which has fueled its superb development over the previous 130 years. Its sturdy money circulation permits it to spend closely on analysis and improvement. R&D is essential for a well being care firm as a result of it offers product innovation.

R&D can be needed to remain forward of the dreaded “patent cliff”. Patent expirations could cause blockbuster medicine to deteriorate quickly, as soon as a flood of competitors enters the market. J&J’s aggressive R&D investments have resulted in product innovation and a strong pharmaceutical pipeline, which can assist produce development for years to come back.

And, J&J’s glorious stability sheet offers a aggressive benefit. It’s certainly one of solely two U.S. corporations with an ‘AAA’ credit standing from Customary & Poor’s, together with Microsoft (MSFT).

J&J’s model management and constant profitability allowed the corporate to navigate the Nice Recession very properly. Earnings-per-share through the Nice Recession are beneath:

  • 2007 earnings-per-share of $4.15
  • 2008 earnings-per-share of $4.57 (10% improve)
  • 2009 earnings-per-share of $4.63 (1% improve)
  • 2010 earnings-per-share of $4.76 (3% improve)

As you possibly can see, the corporate elevated earnings in every year of the recession. This helped it proceed elevating its dividend every year, despite the fact that the U.S. was going by a steep financial downturn. J&J additionally remained extremely worthwhile and elevated its dividend once more in 2020, when the worldwide economic system was severely impacted by the coronavirus pandemic.

Buyers will be fairly assured that the corporate will improve its dividend every year shifting ahead.

Valuation & Anticipated Returns

Johnson & Johnson inventory is modestly valued at this time. We count on adjusted earnings-per-share of $10.55 for 2023. Utilizing the present share worth of $165, the inventory’s ahead price-to-earnings ratio is 15.4. Our honest worth estimate for J&J inventory is a P/E ratio of 17, which means the inventory is barely undervalued. A rising P/E a number of from 15.4 to 17 might carry annual returns by 2.1% per 12 months over the subsequent 5 years.

In the meantime, future returns will likely be fueled by earnings development and dividends. We count on the corporate to develop EPS by 6% per 12 months by 2028.

As well as, Johnson & Johnson has one of many longest dividend development streaks available in the market and continues to extend its dividend yearly. In April 2022, the corporate prolonged its streak to 60 years after elevating its dividend by 6.6%. Shares yield 2.8% at this time.

The next is our forecast for anticipated whole annual returns by 2024.

  • 6% earnings-per-share development
  • 2.1% a number of reversion
  • 2.8% dividend yield

We count on that J&J can generate a complete annual return of 10.9% per 12 months over the subsequent 5 years, a passable degree of return for risk-averse earnings traders.

Closing Ideas

J&J has six many years of consecutive dividend will increase below its belt. There are only a few certainties within the inventory market, however certainly one of them is that J&J will improve its dividend every year. The corporate has loads of future development, due to a robust pipeline and its current acquisitions.

J&J is attractively valued, with a long-term development outlook and a market-beating dividend. It ought to have little hassle elevating its dividend every year for a few years to come back. Consequently, it’s a high-quality dividend development inventory to purchase and maintain for the long term.

Moreover, the next Certain Dividend databases include probably the most dependable dividend growers in our funding universe:

For those who’re on the lookout for shares with distinctive dividend traits, contemplate the next Certain Dividend databases:

Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to [email protected]

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