Johnson & Johnson: One Of The Safest Dividend Stocks Around
Income focused investors who want to focus on safe dividends from companies that have proved that they can resist market turbulence, recessions and other crisis, should take a look at the Dividend Aristocrats.
These are stocks that have raised their annual dividend payout for at least 25 years in a row, showing that they were able to handle the last financial crisis as well as other headwinds while raising their dividend each and every year.
Johnson & Johnson (JNJ) is one of the safest Dividend Aristocrats around. It is very likely to continue paying rising dividends far into the future.
Company Overview
Johnson & Johnson operates in the pharmaceuticals, medtech and consumer goods segments of the healthcare sector. It is one of the largest companies in the US based on its market capitalization of $335 billion. The company was founded over 130 years ago and has increased its dividend payments… for 55 consecutive years.
Johnson & Johnson is diversified across three different portions of the healthcare industry. In addition, the company is well diversified geographically, as its operations span the whole globe.
Excellent diversification is coupled with an extremely strong balance sheet, which has resulted in Johnson & Johnson having an AAA rating from S&P. Johnson & Johnson is one of only two publicly traded companies with a coveted AAA rating. The other is Microsoft (MSFT). Simply put, Johnson & Johnson is one of the lowest-risk and most stable stocks investors can buy today.
Current Events & Growth Prospects
Johnson & Johnson has recorded compelling earnings growth in the past and continues to do so today. During the most recent quarter its earnings per share rose by 13%. For 2018 management expects earnings-per-share of $8.10, which would mean an 11% increase over 2017’s total. For a company of Johnson & Johnson’s size and safety, this is an excellent growth rate.
Johnson & Johnson’s growth outlook beyond 2018 is solid as well. The company benefits from a strong pharmaceuticals pipeline. In oncology alone Johnson & Johnson is currently running 17 phase III trials, and drugs such as Imbruvica and Darzalex continue to ramp up. In its medtech and consumer goods segments Johnson & Johnson is generating slightly lower growth rates, but ultimately the growth outlook is positive there as well.
Dividend And Valuation
Johnson & Johnson’s current annual dividend payout of $3.60 provides a dividend yield of 2.9% right now, which is more than one and a half as much as the broad market’s dividend yield.
Based on this year’s profits, Johnson & Johnson’s dividend payout ratio of 44% is quite modest. This makes the dividend very safe, and it leaves room for Johnson & Johnson to increase the payout further in the future – even if earnings-per-share growth were to pause.
With shares trading at $125 right now Johnson & Johnson’s valuation is not overly high. Shares are only trading around 15 times expected 2018 earnings-per-share. This is slightly lower than the company’s long-term median price-to-earnings ratio. Modest valuation multiple expansion is possible moving forward.
Even without any changes to its valuation Johnson & Johnson promises attractive returns, though, as the company’s dividend yield of 2.9% and a mid-to-high-single digits long term earnings-per share -growth rate would allow for annual total returns in the high-single or low-double digits.
The Bottom Line
Investors looking for safety, income, and dividend growth should consider Johnson & Johnson. Johnson & Johnson is one of the highest quality and safest stocks around. It is exceptionally likely to pay rising dividends to shareholders far into the future.
Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.
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