Updated on May 20th, 2024 by Bob Ciura
Johnson & Johnson (JNJ) is a company that many investors are likely familiar with. J&J has been in operation for more than 130 years and has raised its dividend for over 60 years in a row.
It has one of the longest and most impressive histories of any dividend growth stock.
J&J is a long-standing member of the Dividend Aristocrats. You can see a full downloadable list of all 68 Dividend Aristocrats (along with important financial metrics such as dividend yields and price-to-earnings ratios) by clicking the link below:
Disclaimer: Sure Dividend is not affiliated with S&P Global in any way. S&P Global owns and maintains The Dividend Aristocrats Index. The information in this article and downloadable spreadsheet is based on Sure Dividend’s own review, summary, and analysis of the S&P 500 Dividend Aristocrats ETF (NOBL) and other sources, and is meant to help individual investors better understand this ETF and the index upon which it is based. None of the information in this article or spreadsheet is official data from S&P Global. Consult S&P Global for official information.
Not only is Johnson & Johnson a Dividend Aristocrat, but it is also a Dividend King as well.
The Dividend Kings are an even more exclusive group of stocks, with 50+ years of consecutive dividend increases. There are just 54 companies that have achieved this accomplishment.
J&J has all of the qualities to look for in great dividend growth stocks. It has a dividend yield above the S&P 500 average, backed by a strong brand and highly profitable business model, with potential for long-term growth.
This article will discuss the quintessential Dividend Aristocrat that is Johnson & Johnson.
Business Overview
J&J is one of the largest companies in the world, but it started from very humble beginnings. It was founded all the way back in 1886 by three brothers, Robert, James, and Edward Johnson.
In 1888, the three brothers published a healthcare manuscript titled “Modern Methods of Antiseptic Wound Treatment”, which would quickly become the leading standard for antiseptic surgery techniques.
Over the following decades, the company steadily brought new products to market. Soon, the company was the leading manufacturer across several healthcare categories, including baby powder, sanitary napkins, dental floss, and more.
Today, J&J is a global healthcare giant. It has a market capitalization of $370 billion. J&J is a mega-cap stock, a term to describe stocks with market caps above $200 billion. You can see our mega-cap stocks list here.
On April 16th, 2024, Johnson & Johnson reported first quarter results for the period ending March 31st, 2024. For the quarter, revenue grew 2.3% to $21.4 billion, which was in-line with estimates. Adjusted earnings-per-share of $2.71 compared to $2.68 in the prior year and was $0.06 better than expected.
Growth Prospects
Excluding Covid-19 vaccine sales, the company’s revenue total grew 7.7% in the first quarter. Revenue for Innovative Medicines improved 1.1% on a reported basis, but was higher by 8.3% when excluding currency translation. Infectious Disease fell more than 48%, mostly due to reduced Covid-19 vaccine revenue.
Oncology continues to perform well, with revenue up 17.1% due to continued strength in Darzalex, which treats multiple myeloma. Imbruvica, which treats lymphoma, still leads in market share, but continues to suffer declines due to competitive pressures.
Source: Investor Presentation
Immunology increased 3.3%. Stelara, which treats immune-mediated inflammatory diseases, once again benefited from market share growth and share gains.
Revenue for MedTech was up 4.5% on a reported basis and grew 6.3% excluding the impact of currency exchange. Cardiovascular was the standout performer, as sales were up more than 20% due to gains in both global procedures and new products.
Johnson & Johnson offered revised guidance for 2024 as well. The company now expects revenue in a range of $88.7 billion to $89.1 billion, compared to $88.2 billion to $89 billion previously. Adjusted earnings-per-share is now projected to be in a range of $10.60 to $10.75 for the year, compared to $10.55 to $10.75 previously.
Johnson & Johnson’s massive business platforms and global reach provide the company with durable competitive advantages, which in turn have fueled its growth over the past several decades.
We expect 6% annual earnings-per-share growth for J&J over the next five years.
Competitive Advantages & Recession Performance
Johnson & Johnson’s most important competitive advantage is innovation, which has fueled its amazing growth over the past 130+ years.
Its strong cash flow allows it to spend heavily on research and development. R&D is critical for a health care company because it provides product innovation.
R&D is also necessary to stay ahead of the “patent cliff”. Patent expirations can cause blockbuster drugs to deteriorate rapidly, once a flood of competition enters the market.
J&J’s aggressive R&D investments have resulted in product innovation and a robust pharmaceutical pipeline, which will help produce growth for years to come.
Source: Investor Presentation
And, J&J’s excellent balance sheet provides a competitive advantage. It is one of only two U.S. companies with an ‘AAA’ credit rating from Standard & Poor’s, along with Microsoft (MSFT).
J&J’s brand leadership and consistent profitability allowed the company to navigate the Great Recession very well. Earnings-per-share during the Great Recession are below:
- 2007 earnings-per-share of $4.15
- 2008 earnings-per-share of $4.57 (10% increase)
- 2009 earnings-per-share of $4.63 (1% increase)
- 2010 earnings-per-share of $4.76 (3% increase)
As you can see, the company increased earnings in each year of the recession. This helped it continue raising its dividend each year, even though the U.S. was going through a steep economic downturn. J&J also remained highly profitable and increased its dividend again in 2020, when the global economy was severely impacted by the coronavirus pandemic.
Investors can be reasonably confident that the company will increase its dividend each year moving forward.
Valuation & Expected Returns
We expect adjusted earnings-per-share of $10.68 for 2024. Using the current share price of $152, the forward price-to-earnings ratio is 14.2. Our fair value estimate for J&J stock is a P/E ratio of 17, which implies the stock is undervalued. A rising P/E multiple could lift annual returns by 3.7% per year over the next five years.
Meanwhile, future returns will be fueled by earnings growth and dividends. We expect the company to grow EPS by 6% per year through 2028.
In addition, Johnson & Johnson has one of the longest dividend growth streaks in the market and continues to increase its dividend every year. It has increased its dividend for over 60 consecutive years. Shares yield 3.2% today.
Overall, we expect that J&J can generate a total annual return of 12.9% per year over the next five years, a satisfactory level of return for risk-averse income investors.
Final Thoughts
J&J has six decades of consecutive dividend increases under its belt. There are very few certainties in the stock market, but one of them is that J&J will increase its dividend each year. The company has plenty of future growth, thanks to a strong pipeline and its recent acquisitions.
J&J is attractively valued, with a long-term growth outlook and a market-beating dividend. It should have little trouble raising its dividend each year for many years to come. As a result, it is a high-quality dividend growth stock to buy and hold for the long run.
Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Dividend Champions: Dividend stocks with 25+ years of dividend increases, including those that may not qualify as Dividend Aristocrats.
- The Dividend Achievers: dividend stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings: considered to be the ultimate dividend growth stocks, the Dividend Kings list is comprised of stocks with 50+ years of consecutive dividend increases
If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:
- The Complete List of Monthly Dividend Stocks: stocks that pay dividends each month, for 12 payments over the year.
- The Blue Chip Stocks List: this database contains stocks that qualify as either Dividend Achievers, Dividend Aristocrats, or Dividend Kings.