Revealed on Could third, 2023 by Aristofanis Papadatos
Johnson & Johnson (JNJ) just lately raised its dividend by 5%, and thus it has now raised its dividend for 61 consecutive years. This is likely one of the longest dividend development streaks within the investing universe, which is a testomony to the corporate’s enterprise mannequin’s energy and stable execution. Additionally it is value noting that the inventory has underperformed the S&P 500 by a large margin this 12 months, because it has shed 7% whereas the index has rallied 8%. Consequently, the inventory has turn into enticing. On this article, we are going to analyze the prospects of this best-of-breed pharmaceutical big.
You possibly can obtain an Excel spreadsheet with the complete checklist of all 68 Dividend Aristocrats (with extra monetary metrics similar to price-to-earnings ratios and dividend yields) by clicking the hyperlink beneath:
Enterprise Overview
Based in 1886, Johnson & Johnson is a diversified healthcare firm and a pacesetter within the space of prescription drugs (~54% of gross sales), medical gadgets (~30% of gross sales), and client merchandise (~16% of gross sales).
Supply: Investor Presentation
Johnson & Johnson has 28 manufacturers/pharmaceutical platforms that generate greater than $1 billion in annual revenues. The corporate is a pacesetter in its markets, because it generates roughly 70% of its gross sales from the Nr 1 or Nr 2 market share place.
Furthermore, Johnson & Johnson is the fifth-largest firm within the U.S. and the eighth-largest firm on the planet within the complete quantity spent on Analysis & Growth (R&D). Due to its exemplary R&D division, the corporate has a formidable development report. Johnson & Johnson grew its adjusted working earnings for 36 consecutive years till 2020, when the pandemic precipitated a benign 7% lower in its earnings per share. A 7% lower within the earnings per share throughout one of many fiercest downturns in historical past is a testomony to the corporate’s resilience to recessions. Johnson & Johnson has emerged stronger from this disaster, with report earnings per share in 2021 and 2022.
Johnson & Johnson at the moment enjoys constructive enterprise momentum. Due to stable development in all its enterprise segments, it grew its operational gross sales by 9.0% over the prior 12 months’s quarter.
Supply: Investor Presentation
Prescribed drugs, medical gadgets, and client merchandise grew their operational gross sales by 7.2%, 11.0%, and 11.3%, respectively. Adjusted earnings per share edged up solely marginally, from $2.67 to $2.68, however they exceeded the analysts’ estimates by $0.18.
Notably, Johnson & Johnson has exceeded the analysts’ earnings-per-share estimates for 20 consecutive quarters. That is undoubtedly a formidable efficiency report, which confirms that the pharmaceutical big enjoys sustained enterprise momentum. Due to this momentum, administration just lately raised its steerage for the earnings per share this 12 months from $10.45-$10.65 to $10.60-$10.70. On the mid-point, the brand new steerage implies 5% development of earnings per share over the prior 12 months to a brand new all-time excessive.
Johnson & Johnson has grown its common earnings per share by 7.0% per 12 months over the past decade. Given the dedication of the pharmaceutical big on investing closely in its R&D division and its constant development report, we count on the corporate to develop its backside line by about 6% per 12 months on common over the subsequent 5 years.
Dividend
On April 18th, 2023, Johnson & Johnson introduced a 5% dividend elevate. Consequently, the corporate has now grown its dividend for 61 consecutive years and is at the moment providing a 2.9% ahead dividend yield. This yield could seem lackluster to most income-oriented traders, however you will need to be aware that this yield is a virtually 10-year excessive for this premium inventory. As a result of distinctive efficiency report of Johnson & Johnson and its dependable development trajectory, it’s uncommon to discover a inventory with a a lot larger dividend yield.
Johnson & Johnson has all the time been a money circulation producing machine, as its unparalleled product portfolio has all the time generated extreme free money flows, which have extremely rewarded the shareholders. The identical was evident within the newest quarter.
Supply: Investor Presentation
Within the first quarter, Johnson & Johnson invested $3.6 billion in its R&D division, whereas it additionally distributed $2.9 billion in dividends and spent $2.5 billion on share repurchases. Administration has made it clear that it prioritizes reinvesting earnings within the enterprise with the intention to develop organically and carry out high-return acquisitions over shareholder distributions. Thanks to those priorities, the corporate has achieved its spectacular development report. Even higher, regardless of the fabric investments in its enterprise, the corporate has all the time generated extreme free money flows and thus it has simply remained one of the fashionable shares within the income-oriented investing neighborhood.
The corporate is at the moment dealing with a menace because of the quite a few pending lawsuits associated to the antagonistic well being affect of talc on 1000’s of individuals. Johnson & Johnson is attempting to switch all of the liabilities from this subject to a separate division, thus attempting to guard itself from the impact of those liabilities. This follow has turn into fairly frequent in recent times however the Division of Justice has not accepted this technique of Johnson & Johnson up to now. Subsequently, there’s excessive uncertainty over the ultimate affect of the 1000’s of lawsuits on Johnson & Johnson.
However, Johnson & Johnson has a rock-solid stability sheet. It is likely one of the extraordinarily few corporations that pay completely no curiosity expense whereas its internet debt is just $84 billion, which is simply 20% of the inventory’s market capitalization.
Furthermore, Johnson & Johnson has proved basically proof against recessions due to the energy of its manufacturers and the important nature of its merchandise. Whereas most corporations incurred a collapse of their earnings within the Nice Recession, Johnson & Johnson saved rising its earnings and its dividend all through that disaster.
Given the wholesome payout ratio of 45% of Johnson & Johnson, its rock-solid stability sheet, its resilience to recessions, and its dependable development trajectory, traders ought to relaxation assured that the corporate will proceed elevating its dividend for a lot of extra years. Johnson & Johnson has grown its dividend by 6% per 12 months on common over the past decade and over the past 5 years. As it’s prone to develop its earnings per share at an analogous tempo within the upcoming years, traders can fairly count on the dividend of the inventory to proceed rising at its historic tempo within the upcoming years.
Last Ideas
Johnson & Johnson has underperformed the broad market by a large margin this 12 months, primarily because of the uncertainty ensuing from the corporate’s quite a few pending lawsuits. Consequently, the inventory has turn into enticing, providing a virtually 10-year excessive dividend yield. Due to its rock-solid stability sheet and the energy of its manufacturers, the pharmaceutical big can endure the continued downturn and get better strongly every time the lawsuits are settled. Subsequently, the inventory is prone to extremely reward long-term traders, who can wait patiently for the storm to cross and stay centered on the stable fundamentals of this best-of-breed inventory.
In case you are fascinated with discovering high-quality dividend development shares and/or different high-yield securities and revenue securities, the next Positive Dividend sources might be helpful:
Excessive-Yield Particular person Safety Analysis
Different Positive Dividend Assets
Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to [email protected].
