Diksia.com - Johnson & Johnson (JNJ) is one of the world’s largest and most diversified healthcare companies, with three segments: pharmaceutical, medical devices and diagnostics, and consumer. The company has a long history of innovation, quality, and social responsibility, and is well-known for its iconic brands such as Tylenol, Band-Aid, Neutrogena, and Listerine. JNJ stock is also a favorite among investors who appreciate its consistent performance, strong fundamentals, and generous dividends.
In this article, we will explore some of the reasons why JNJ stock is a healthy choice for investors who are looking for a reliable and resilient company that can deliver long-term value.
JNJ Stock: A Leader in the Healthcare Sector
One of the main advantages of JNJ stock is its leadership position in the healthcare sector, which is one of the most essential and resilient industries in the world. According to the World Health Organization, global health spending is expected to increase from $8.3 trillion in 2020 to $11.4 trillion in 2025, driven by factors such as aging populations, rising incomes, chronic diseases, and technological advancements. JNJ is well-positioned to capitalize on these trends, as it offers a diversified portfolio of products and services that cater to various needs and markets across the healthcare spectrum.
JNJ’s pharmaceutical segment is the largest and most profitable of its three divisions, accounting for about 55% of its total revenue and 70% of its operating income in 2020. The segment focuses on six therapeutic areas: immunology, oncology, neuroscience, infectious diseases, cardiovascular and metabolism, and pulmonary hypertension. JNJ has a robust pipeline of innovative drugs, with 14 new products launched since 2011 and 14 more expected to launch by 2023. Some of its best-selling drugs include Stelara, Imbruvica, Darzalex, and Tremfya, which have strong growth potential and patent protection. JNJ is also a leader in the development of vaccines, as evidenced by its single-shot Covid-19 vaccine, which has been authorized for emergency use in several countries and has shown efficacy against variants.
JNJ’s medical devices and diagnostics segment is the second-largest of its three divisions, accounting for about 30% of its total revenue and 20% of its operating income in 2020. The segment offers a wide range of products and solutions for orthopedics, surgery, vision care, interventional solutions, and diabetes care. JNJ is the global leader in orthopedics, with a market share of about 25%, and has a strong presence in other segments such as contact lenses, surgical instruments, and wound care. JNJ is also investing in digital surgery, robotics, and biosensors, which are expected to drive future growth and innovation in the medical devices and diagnostics market.
JNJ’s consumer segment is the smallest of its three divisions, accounting for about 15% of its total revenue and 10% of its operating income in 2020. The segment offers a variety of products for baby care, beauty, oral care, over-the-counter drugs, and women’s health. JNJ has some of the most trusted and recognized brands in the world, such as Johnson’s, Aveeno, Neutrogena, Listerine, Tylenol, and Motrin. JNJ is also focused on enhancing its portfolio by divesting low-growth and low-margin businesses, such as its talc-based baby powder and its diabetes device unit, and acquiring high-growth and high-margin businesses, such as the skin-care brand Dr. Ci:Labo and the hair-care brand OGX.
JNJ Stock: A Stable and Growing Performer
Another reason why JNJ stock is a healthy choice for investors is its stable and growing financial performance, which reflects its diversified and resilient business model. JNJ has delivered positive revenue and earnings growth for 37 consecutive years, and has increased its dividend for 59 consecutive years, making it one of the few dividend kings in the market. JNJ has also maintained a strong balance sheet, with a net cash position of $9.7 billion and a credit rating of AAA, the highest possible rating, as of the end of 2020.
In 2020, despite the challenges posed by the Covid-19 pandemic, JNJ reported revenue of $82.6 billion, up 0.6% year-over-year, and adjusted earnings per share of $8.03, up 3.9% year-over-year. JNJ also generated free cash flow of $20.2 billion, up 16.7% year-over-year, and returned $10.5 billion to shareholders through dividends and $5.5 billion through share repurchases. JNJ also raised its quarterly dividend by 6.3% to $1.01 per share, representing a payout ratio of 50% and a yield of 2.5%.
For 2021, JNJ expects revenue of $90.5 billion to $91.7 billion, representing a growth of 9.5% to 11% year-over-year, and adjusted earnings per share of $9.42 to $9.57, representing a growth of 17.3% to 19.3% year-over-year. JNJ also expects free cash flow of $23 billion to $24.5 billion, representing a growth of 13.9% to 21.3% year-over-year. JNJ’s guidance assumes a contribution of $2.5 billion from its Covid-19 vaccine, which is being sold on a not-for-profit basis during the pandemic.
JNJ Stock: A Generous and Reliable Dividend Payer
A third reason why JNJ stock is a healthy choice for investors is its generous and reliable dividend, which provides a steady and growing income stream for shareholders. JNJ has a long and impressive track record of dividend growth, having increased its dividend every year since 1963. JNJ is one of the few companies that have achieved the status of dividend king, which means it has raised its dividend for at least 50 consecutive years. JNJ’s dividend growth rate has averaged 6.3% over the past 10 years, 6.1% over the past five years, and 6.3% over the past year.
JNJ’s dividend is also well-supported by its earnings and cash flow, which indicate its ability and commitment to sustain and grow its dividend in the future. JNJ’s payout ratio, which measures the percentage of earnings that are paid out as dividends, is 50%, which is below its five-year average of 54% and within its target range of 40% to 60%. JNJ’s free cash flow payout ratio, which measures the percentage of free cash flow that are paid out as dividends, is 52%, which is below its five-year average of 55% and within its target range of 50% to 70%. JNJ’s dividend yield, which measures the annual dividend income per share divided by the share price, is 2.5%, which is above its five-year average of 2.4% and above the S&P 500 average of 1.3%.
Conclusion
JNJ stock is a healthy choice for investors who are looking for a reliable and resilient company that can deliver long-term value. JNJ is a leader in the healthcare sector, with a diversified portfolio of products and services that cater to various needs and markets across the globe. JNJ is a stable and growing performer, with a consistent track record of revenue and earnings growth, a strong balance sheet, and a positive outlook for 2021.
JNJ is a generous and reliable dividend payer, with a long history of dividend growth, a reasonable payout ratio, and an attractive yield. JNJ stock is currently trading at $160.63 per share, with a forward P/E ratio of 14.7 and a forward dividend yield of 3%. JNJ stock has a consensus buy rating from analysts, with a 12-month average price target of $167.731, implying a potential upside of 4.4%. JNJ stock is a solid investment option for long-term investors who value stability, growth, and dividends.
