Johnson & Johnson (JNJ): The Dividend King of Kings
April 22, 2016 – by Richard Band
Long-term growth investors are always looking for a great growth story with a little dividend kicker, to get that compounding in gear. Johnson & Johnson (JNJ) is not only a great growth story, but it has one of the most reliable dividends in the market.
There are companies that are called Dividend Aristocrats. They have a history of growing their dividends for at least 30 years. And of that group, there’s a smaller group called the Dividend Kings. They have a history of raising dividends for 50 years or more.
Johnson & Johnson is a king.
For 53 years, JNJ has increased its dividend. Its 10-year total return averages more than 8% annually and its dividend growth is about 8% annually.
That means Johnson & Johnson has been through a number of booms and busts and has learned how to weather bad markets and make hay in good markets. This is indispensable for investors that are looking for a safe, solid total return stock as an anchor in their portfolio.
What Gives Johnson & Johnson Its Crown?
What makes Johnson & Johnson so consistent is the fact that while it sticks to the healthcare space, it is broadly diversified across the entire space. The fact that it’s the only healthcare company that is a Dividend King is testament to the unique product mix and management savvy that make up JNJ stock.
It’s the largest pharmaceutical company in the U.S. and one of the top 10 fastest growing pharmas in the world. With blockbusters like Remicade (for Crohn’s disease), Stelara (for plaque psoriasis) and Remicade (for arthritis), this sector of the business brings in about $32 billion and represents more than 45% of the company’s revenue.
Johnson & Johnson also has some promising cancer drugs that are just gaining traction. One of these, Imbruvica has just been granted breakthrough status with the FDA to expand its use in more patients.
Its consumer segment includes brands ranging from Band-Aid to Aveeno and Tylenol (the list is endless). This sector is responsible for 19% of JNJ’s revenue. It doesn’t have the growth that the pharma sector does, but it is a solid core business regardless of economic cycles.
Its third sector is medical devices and it represents nearly 36% of Johnson & Johnson revenue. In its recent earnings report for Q1, JNJ announced that its medical devices business slowed in its international markets, again. Some of this was also due to exchange rate issues because the dollar is strong and foreign sales are lower when converted back to dollars.
But in typical Johnson & Johnson fashion, it had already anticipated this trend and announced in January that it is cutting 3,000 jobs from its medical devices division. It will continue to restructure the division this year.
And speaking of earnings, Q1 beat estimates and the company has guided higher for 2016. JNJ stock is a king, no doubt about it.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation. As of this writing, he did not hold a position in any of the aforementioned securities.