Dividend Kings In Focus: Kenvue

Printed on November twenty eighth, 2023 by Bob Ciura

The Dividend Kings are an illustrious group of corporations. These corporations stand other than the overwhelming majority of the market as they’ve raised dividends for no less than 50 consecutive years.

We imagine that buyers ought to view the Dividend Kings as essentially the most high-quality dividend progress shares to purchase for the long run.

With this in thoughts, we created a full checklist of all of the Dividend Kings. You possibly can obtain the total checklist, together with necessary monetary metrics corresponding to dividend yields and price-to-earnings ratios, by clicking the hyperlink beneath:

This group is so unique that there are simply 54 corporations that qualify as a Dividend King.

Kenvue Inc. (KVUE) is the latest addition to the Dividend Kings checklist, having lately been spun off from former guardian firm Johnson & Johnson (JNJ).

This text will analyze Kenvue’s enterprise mannequin, future progress catalysts, and anticipated returns.

Enterprise Overview

Kenvue operates within the healthcare sector as a shopper merchandise producer. In Might 2023, Kenvue was spun off from Johnson & Johnson. Now, Kenvue operates three segments: Self Care, Pores and skin Well being and Magnificence, and Important Well being.

Self Care’s product portfolio contains cough, chilly, allergy, smoking cessation, and ache care merchandise amongst others. Pores and skin Well being and Magnificence holds merchandise corresponding to face, physique, hair, and solar care. Important Well being comprises merchandise for ladies’s well being, wound care, oral care, and child care.

Nicely-known manufacturers in Kenvue’s product line up embrace Tylenol, Listerine, Band-Support, Neutrogena, Nicorette, and Zyrtec. These companies contributed roughly 17% of Johnson & Johnson’s annual income.

On October twenty sixth, 2023, Kenvue reported third quarter earnings outcomes for the interval ending October 1st, 2023. Income grew 3.4% to $3.92 billion, which was $10 million above estimates.

Supply: Investor Presentation

Adjusted earnings-per-share of $0.31 was in-line with expectations. Natural gross sales grew 3.6% as pricing and blend had been partially offset by a 3.5% decline in quantity. Chilly and cough had been once more robust whereas pores and skin, well being, and wonder additionally confirmed beneficial properties. Gross revenue margin improved 140 foundation factors to 57.5%.

Kenvue additionally supplied an up to date outlook for 2023. The corporate now expects income progress to be in a variety of 4.0% to 4.5% and natural progress of 5.5% to six.0%, down from 4.5% to five.5% and 5.5% to six.5%, respectively. Kenvue initiatives adjusted earnings-per-share to be in a variety of $1.26 to $1.28 for the yr.

Development Prospects

Johnson & Johnson produced annual earnings progress of seven% for the 2013 to 2022 interval as the corporate’s diversification allowed it to be one of many extra steady corporations out there place. Kenvue consists of simply the patron merchandise companies, which had been usually produced the bottom ranges of progress. Subsequently, we count on that Kenvue will develop earnings-per-share by 3% yearly by way of 2028.

Johnson & Johnson’s dividend progress streak of 61 consecutive years is among the longest out there place. The corporate is each a Dividend King and a Dividend Aristocrat. We imagine that penchant for dividend progress is in Kenvue’s enterprise DNA.

Aggressive Benefits & Recession Efficiency

Kenvue’s former guardian firm Johnson & Johnson has confirmed to be one of the vital profitable corporations at navigating recessions. Although Kenvue now not advantages from its guardian firm’s diversification, we imagine that it might show equally efficient at dealing with financial downturns.

Since Kenvue was a subsidiary of Johnson & Johnson through the Nice Recession of 2008-2009, there isn’t any information on its earnings-per-share efficiency throughout that point. Nonetheless, buyers can moderately infer that Kenvue would show an identical diploma of resilience throughout recessions as its former guardian firm.

The corporate’s merchandise, corresponding to Band-Support and Tylenol, are wanted whatever the state of the financial system as they deal straight with customers’ well being and well-being. As trusted merchandise, they want proceed to carry out properly even below opposed circumstances.

Total, Kenvue ought to proceed to boost its dividend for a lot of extra years due to its low payout ratio, its respectable resilience to recessions, and its wholesome stability sheet.

Valuation & Anticipated Returns

We count on Kenvue to generate adjusted earnings-per-share of $1.27 for 2023. Subsequently, shares of Kenvue presently commerce for a price-to-earnings ratio of 15.9. For context, Johnson & Johnson shares have a mean price-to-earnings ratio of near 19 since 2013.

Countering the truth that Kenvue holds a number of the business main manufacturers with that its merchandise had been the decrease margin companies throughout the guardian firm, now we have a goal price-to-earnings ratio of 14 for the inventory. This suggests a headwind from a number of contraction.

Subsequently, valuation might scale back annual returns by 2.5% if the inventory had been to succeed in our goal a number of by 2028. Optimistic returns might be generated by EPS progress (estimated at 3% per yr) and dividends.

On July twentieth, 2023, Kenvue introduced its first-ever quarterly dividend of $0.20 per share to be distributed on September seventh, 2023. The annualized payout of $0.80 per share represents a present yield of 4.0%.

Placing all of it collectively, complete returns are anticipated to succeed in 4.5% per yr by way of 2028. This can be a strong anticipated price of return that makes the inventory a maintain, however not a purchase presently.

Closing Ideas

Kenvue is a brand new addition to the Dividend Aristocrats checklist. After many years as a part of Johnson & Johnson, Kenvue grew to become an unbiased entity early within the second quarter. The corporate has produced respectable outcomes as far as an unbiased firm.

Whereas we discover the legacy enterprise to be recession-resistant and the excessive dividend yield to be enticing for revenue buyers, the overall return profile is just not excessive sufficient for a purchase advice. We price KVUE inventory to be a maintain.

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

The Dividend Champions: Dividend shares with 25+ years of dividend will increase, together with these that will not qualify as Dividend Aristocrats.
The Finest DRIP Shares: The highest 15 Dividend Aristocrats with no-fee dividend reinvestment plans.

If you happen to’re in search of shares with distinctive dividend traits, take into account the next Positive Dividend databases:

The most important home inventory market indices are one other strong useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month: