Printed on Might third, 2023 by Aristofanis Papadatos
Johnson & Johnson (JNJ) not too long ago raised its dividend by 5%, and thus it has now raised its dividend for 61 consecutive years. This is without doubt 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 price 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%. Because of this, the inventory has turn into enticing. On this article, we’ll analyze the prospects of this best-of-breed pharmaceutical big.
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Enterprise Overview
Based in 1886, Johnson & Johnson is a diversified healthcare firm and a pacesetter within the space of prescribed 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 this planet within the complete quantity spent on Analysis & Improvement (R&D). Due to its exemplary R&D division, the corporate has a formidable development document. Johnson & Johnson grew its adjusted working earnings for 36 consecutive years till 2020, when the pandemic brought on 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 document earnings per share in 2021 and 2022.
Johnson & Johnson at present 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
Prescription 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 document, which confirms that the pharmaceutical big enjoys sustained enterprise momentum. Due to this momentum, administration not too long ago 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 document, we anticipate the corporate to develop its backside line by about 6% per 12 months on common over the following 5 years.
Dividend
On April 18th, 2023, Johnson & Johnson introduced a 5% dividend increase. Because of this, the corporate has now grown its dividend for 61 consecutive years and is at present providing a 2.9% ahead dividend yield. This yield could seem lackluster to most income-oriented traders, however it is very important observe that this yield is a virtually 10-year excessive for this premium inventory. As a result of distinctive efficiency document of Johnson & Johnson and its dependable development trajectory, it’s uncommon to discover a inventory with a a lot increased dividend yield.
Johnson & Johnson has all the time been a money circulate 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 document. 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 probably the most widespread shares within the income-oriented investing neighborhood.
The corporate is at present going through a risk because of the quite a few pending lawsuits associated to the adversarial well being influence of talc on hundreds 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 observe has turn into fairly widespread lately however the Division of Justice has not accepted this technique of Johnson & Johnson up to now. Due to this fact, there’s excessive uncertainty over the ultimate influence of the hundreds of lawsuits on Johnson & Johnson.
However, Johnson & Johnson has a rock-solid stability sheet. It is without doubt one of the extraordinarily few corporations that pay completely no curiosity expense whereas its internet debt is barely $84 billion, which is simply 20% of the inventory’s market capitalization.
Furthermore, Johnson & Johnson has proved primarily resistant to recessions because of 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 stored 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 more likely to develop its earnings per share at the same tempo within the upcoming years, traders can moderately anticipate 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. Because of this, 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 continuing downturn and get well strongly every time the lawsuits are settled. Due to this fact, the inventory is more likely to extremely reward long-term traders, who can wait patiently for the storm to move and stay targeted on the stable fundamentals of this best-of-breed inventory.
In case you are all in favour of discovering high-quality dividend development shares and/or different high-yield securities and revenue securities, the next Certain Dividend sources can be helpful:
Excessive-Yield Particular person Safety Analysis
Different Certain Dividend Assets
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