Investors looking for quality stocks to buy and hold for the long term, should focus on stocks with durable competitive advantages, growth potential, and attractive dividend payouts.
Johnson & Johnson (JNJ) stock has a 2.9% dividend yield and a long history of dividend growth. It has increased its dividend for over 50 years in a row, making it a Dividend King, a small group of 26 stocks with at least 50 consecutive years of dividend increases.
The combination of a market-beating dividend yield and over five decades of annual dividend hikes makes Johnson & Johnson stock a high-quality holding for long-term dividend growth.
Business Overview & Recent Events
Johnson & Johnson is one of the largest healthcare companies in the world. It has a market cap over $350 billion. It operates three core segments: pharmaceuticals, medical devices, and consumer products.
The company has seen a heightened level of headline risk over the past several weeks, based on potential legal penalties over various lawsuits. A recent report of possible contaminants in its talc powder, as well as a separate court case in Oklahoma pertaining to the company’s role in the opioid crisis, has caused Johnson & Johnson to decline by 6% in the past month.
While Johnson & Johnson might experience potentially severe financial penalties resulting from the various lawsuits, the long-term direction of the company remains intact. The long-term fundamentals are still highly supportive of growth. Johnson & Johnson will benefit from the aging U.S. population and higher healthcare spending for many years. The company grew its adjusted EPS by 12% in 2018, while operational revenue increased 5.5% for the year.
In the 2019 first quarter, EPS increased 2% while revenue was roughly flat from the same quarter last year. Johnson & Johnson’s most important growth catalyst is its pharmaceutical business, which continues to grow at a high rate. The pharmaceutical segment grew revenue by 12% in 2018, and by 4% in the most recent quarter.
Johnson & Johnson’s immunology and oncology portfolios are highly attractive. Immunology revenue increased 7% while Oncology grew 9% last quarter. New products such as Stelara, which grew sales by 36% last quarter, are leading the way. There should be plenty of additional growth in the years ahead, as the company has a well-stocked pipeline, including 26 platforms or products with over $1 billion in annual sales.
Long-Term Dividend Growth
Johnson & Johnson’s strong business model has led to a long history of reliable dividend growth. The company recently increased its dividend by 6%, and has now increased its dividend for 57 years in a row. With a payout ratio below 50% expected for 2019, Johnson & Johnson should have no trouble raising the dividend next year, and for many years in the future.
Few companies have the ability to raise their dividends for as long as Johnson & Johnson has, which indicates the company’s recession-resistant business model. Johnson & Johnson grew its EPS in each of the Great Recession, from 2008 through 2010. Not many companies managed to grow EPS in each year throughout the recession, but Johnson & Johnson did. This allowed it to continue raising its dividend each year, like clockwork.
With a long track record of growth, a nearly 3% dividend yield, and annual dividend increases, Johnson & Johnson is a high-quality holding for long-term dividend growth investors.
Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.
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