Updated on November 18th, 2021 by Bob Ciura
Companies that raise dividends over long periods of time can do so, largely because they are well-managed businesses that provide products or services that customers require regardless of economic conditions.
Only the best companies can increase dividends through multiple recessions.
The Dividend Kings are a group of stocks that have raised dividends for at least 50 years. Accomplishing this task is no small feat. The fact that there are just 33 companies that meet the requirement to become a Dividend King is evidence of this.
You can see all 33 Dividend Kings here.
You can also download an Excel spreadsheet with the full list of Dividend Kings (plus important metrics such as price-to-earnings ratios and dividend yields) by clicking on the link below:
Click here to download my Dividend Kings Excel Spreadsheet now. Keep reading this article to learn more.
Johnson & Johnson (JNJ) has increased its dividend for 59 consecutive years, one of the longest growth streaks found anywhere in the stock market.
This healthcare giant is one of most popular dividend growth stocks because of its excellent recession-resistant business model, and dividend track record.
Johnson & Johnson stock remains an excellent holding for long-term dividend growth.
Business Overview
Johnson & Johnson was founded in 1886 and has transformed into one of the largest companies in the world. The company has a market capitalization above $400 billion. The company generates annual sales above $94 billion.
Johnson & Johnson operates a diversified business model, allowing it to appeal to a wide variety of customers within the healthcare sector. The company operates 3 business segments: Pharmaceuticals, Medical Devices, and Consumer Health.
However, this will soon change. J&J announced it will spin off its Consumer Health business.
Source: Investor Presentation
J&J believes the separation will unlock value. The goal is that the two companies will garner a higher cumulative valuation than they would as a single entity.
Growth Prospects
We expect Johnson & Johnson to generate 6% annual earnings-per-share growth over the next five years. The pharmaceutical segment will continue to be the company’s main growth driver, as has been the case for several years.
On 10/19/2021, Johnson & Johnson released third quarter earnings results for the period ending 9/30/2021. Total revenue grew 10.7% to $23.3 billion, while adjusted earnings–per–share of $2.60 increased 18% year-over-year.
Source: Investor Presentation
Pharmaceutical continued its streak of double–digit growth as revenue improved nearly 14%. Oncology revenue was higher by 17% for the quarter. Major growth products include Darzalex, which treats multiple myeloma, and Imbruvica, which treats lymphoma.
Meanwhile, immunology sales increased 12.2%, driven by higher demand for Stelara, which treats immune–mediated inflammatory diseases.
Consumer sales were up more than 5%, while medical devices segment revenue increased 8% year-over-year.
Johnson & Johnson also provided updated guidance for 2021. The company now expects adjusted earnings–per–share of $9.77 to $9.82 for the year, up from $9.50 to $9.60 previously. At the midpoint, this would be a 22% increase from 2020.
Revenue is now expected to be $92.8 billion to $93.3 billion for 2021, up from prior estimates of $92.5 billion to $93.3 billion.
Competitive Advantages & Recession Performance
Johnson & Johnson has multiple advantages over its competitors.
The company’s size and scale are unmatched in its industry. Johnson & Johnson also has a AAA credit rating from Standard & Poor’s and Moody’s Investors Service. This is a higher credit rating than the U.S. government.
The only other company to have a AAA credit rating is Microsoft Corporation (MSFT).
The company’s size and scale, in addition to its credit rating, provide Johnson & Johnson the financial flexibility to make acquisitions to fuel further growth.
Johnson & Johnson also invests heavily in research and development in order to bring new products to market. The company’s R&D budget in 2020 was $12.2 billion.
The result of this investment is that the company has a large portfolio of brands that lead their respective categories. In fact, J&J has 28 individual platforms or products that generate $1 billion or more in annual sales.
These competitive advantages have allowed Johnson & Johnson to weather multiple recessions. Listed below are the company’s earnings-per-share results before, during, and after the last recession
- 2006 earnings-per-share: $3.76
- 2007 earnings-per-share: $4.15 (9.4% increase)
- 2008 earnings-per-share: $4.57 (10.1% increase)
- 2009 earnings-per-share: $4.63 (1.3% increase)
- 2010 earnings-per-share: $4.76 (2.8% increase)
- 2011 earnings-per-share: $5.00 (5% increase)
Johnson & Johnson had EPS growth of almost 12% from 2007 through 2009, an impressive accomplishment given the circumstances of the Great Recession.
The company’s dividend also continued to grow. And with nearly six decades of dividend growth, it is likely that Johnson & Johnson shareholders will continue to receive annual dividend raises well into the future.
Johnson & Johnson’s competitive advantages and its recession performance make the stock an excellent defensive name to hold.
Valuation & Expected Returns
With a current share price of $162 and expected earnings-per-share of $9.80 for the year, Johnson & Johnson has a price-to-earnings ratio of 16.6.
We view the stock as slightly undervalued, with a fair value P/E estimate of 17. Expansion of the P/E multiple from 16.6 to 17 would increase annual returns by 0.5% over the next five years.
Total returns will also consist of earnings growth and dividends.
Given the company’s competitive advantages and recent business performance, we feel that a 6% average annual EPS growth rate is achievable over the next five years.
Finally, using the annualized dividend of $4.24 per share, Johnson & Johnson currently offers a dividend yield of 2.6%. Therefore, total returns are expected as follows:
- 6% earnings growth
- 0.5% multiple expansion
- 2.6% dividend yield
Overall, Johnson & Johnson is expected to offer a total annual return of 9.1% through 2026. This makes the stock a hold, but not quite a buy as the expected returns are below 10%.
Final Thoughts
When it comes to the Dividend Kings, few are as well-known or as popular among dividend growth investors as Johnson & Johnson.
And for good reason: Johnson & Johnson’s diversified business model has allowed the company to endure several recessions and still increase its dividend for the past 59 years. This growth streak is nearly unmatched.
That said, projected returns earn the stock a hold recommendation from Sure Dividend at this time. However, we continue to believe that Johnson & Johnson should be a cornerstone of a dividend growth portfolio.
Investors primarily concerned with income safety may find shares of Johnson & Johnson attractive enough to purchase at the current price.