JNJ Stock: A Top Dividend Stock for Income Investors
In a world where a decent return on investment is hard to come by, Johnson & Johnson (NYSE:JNJ) stock presents an example of a unique investment opportunity for investors seeking a top dividend stock.
There are a few dividend-paying companies that have maintained such a remarkable history of rewarding their investors when it comes to paying dividends. JNJ stock is one of them. Its more than five decades of consecutive dividend hikes have earned the company a place in the “Dividend King” club, which is comprised of only 18 listed companies in the S&P 500.
Johnson & Johnson stock’s latest payout hike came this April, when the company increased its quarterly dividend by 6.7% from $0.75 per share to $0.80 per share. At today’s price, JNJ stock has an annual dividend yield of 2.8%. (Source: “Johnson & Johnson Announces Dividend Increase of 6.7%,” Johnson & Johnson, April 28, 2016.)
This dividend yield may not look too appealing to you, but you’re missing an important point here if you’re a long-term income investor. Imagine 20 or 30 years of investment horizon to see how this investment performs, due to the company’s consistent return of cash to its investors year after year.
Here is an example that will make things easier to understand. Suppose you had bought 100 shares of JNJ in 1990. Assuming you reinvested all of the dividends you received from the company during those 25 years, your investment of $6,000 would have swelled to $146,321 today, a whopping return of more than 2,000%. (Source: “Investment Calculator,” Johnson & Johnson, last accessed on October 19, 2016.)
And if you want to compare Johnson & Johnson stock’s return with other benchmarks in a short time horizon, let’s say in the past 10 years, Johnson & Johnson stock has outperformed all benchmarks, including the S&P 500 stock index, S&P Pharmaceutical Index, and S&P Healthcare Equipment Index.
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Backed by Strong Product Lines
Another important benefit of JNJ stock as part of an investment portfolio is that this company comes from the family of conglomerates that do well during recessionary pressures. The reason is that Johnson & Johnson makes products that are usually immune from spending cuts.
Its product portfolio includes everyday essentials such as “Tylenol,” “Band-Aids,” and “Johnson & Johnson Baby Lotion.” And approximately 70% of its sales are derived from businesses that dominate the global market share in the No. 1 or No. 2 position.
Another reason Johnson & Johnson stock does well during recessions is that it has a well-diversified geographical representation. Being a global giant in consumer and healthcare products, about 49% of the company’s sales come from outside the U.S. (Source: “2015 Investor Fact Sheet,” Johnson & Johnson, last accessed on October 19, 2016.)
What does this all mean for income investors? The most important screening criteria for your long-term income portfolio should be whether a company can produce enough free cash flows going forward that could support inflation-beating increases in dividend payouts.
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For JNJ stock, this doesn’t seem to be a problem.
Last year, the company generated about $16.0 billion in free cash flow on sales of over $70.0 billion. And in the third quarter, Johnson & Johnson beat analysts’ forecasts by reporting $1.53 a share in earnings with over four-percent growth in sales. The company also increased its adjusted earnings guidance for the full year to $6.68 – $6.73 per share. (Source: “Johnson & Johnson Reports 2016 Third-Quarter Results,” Johnson & Johnson, October 18, 2016.)
Bottom Line on Johnson & Johnson Stock
Considering the future earnings potential, JNJ stock trades at 16 times forward earnings, making its valuations much cheaper after a recent slide in the stock value. The stock is down about nine percent from its all-time high reached in July.