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Will Johnson & Johnson Remain A Top Dividend Aristocrat Stock Going Forward?

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Johnson and Johnson (NYSE:JNJ) has been successful nan news lately, mostly for reasons they for illustration not to have. For context, Johnson & Johnson has been served pinch thousands of imaginable lawsuits regarding talc issues wrong their once-popular Johnson's Baby Powder. The lawsuits claimed that nan powder had origin ovarian cancer, asbestos poisoning, and different illnesses for thousands of users.

In 2021, knowing astir nan increasing number of litigation cases, JNJ created LTL Management, which was a abstracted subsidiary owned by Johnson & Johnson. This entity was created to location each nan liabilities and colony payments related to nan lawsuits.

In October 2021, Johnson & Johnson announced that LTL Management had revenge for Chapter 11 bankruptcy. The dream for JNJ was that each liabilities were captured nether this entity. Fast guardant to January 30th of this year and nan U.S. Court of Appeals for nan Third Circuit ruled that nan institution cannot usage bankruptcy to shield itself from nan talc lawsuits. LTL has since requested nan Court of Appeals to reconsider its judgment.

Shares fell complete 3% connected nan original announcement connected January 30th, arsenic JNJ investors began to fret complete nan vulnerability nan institution has wrong these lawsuits.

On nan year, shares of JNJ are down astir 10%.

ycharts.com

ycharts

With each that being said, Johnson & Johnson has agelong been a stalwart among dividend investors. In summation to its existent ineligible issue, nan institution is besides spinning disconnected its user wellness conception astatine nan extremity of nan year, into a caller abstracted institution called Kenvue.

This is bound to bring a batch of alteration for Johnson & Johnson, arsenic nan user wellness conception has agelong been nan backbone of nan company. It is slow successful position of growth, but it is highly accordant and reliable. The user wellness conception owns galore well-known family brands, specified as:

  • Tylenol
  • Motrin
  • Zyrtec
  • Listerine
  • Aveeno
  • Neutrogena
  • Band-Aid.

The mobility that investors person astir is whether aliases not Johnson and Johnson will beryllium capable to stay a accordant dividend payer moving forward.

A Consistent and Reliable Dividend

Johnson & Johnson is dividend royalty, having accrued their dividend for 60 CONSECUTIVE year, making them not only a dividend aristocrat but a dividend king.

What is nan quality betwixt a Dividend Aristocrat and a Dividend King?

A Dividend Aristocrat is simply a banal wrong nan S&P 500 (SP500) that has accrued their dividend for 25+ CONSECUTIVE years. A Dividend King is immoderate banal that has accrued their dividend for 50+ consecutive years.

When you ain shares of Johnson & Johnson, you presently gain $4.52 per stock successful dividends, which equates to a dividend output of 2.8%. Looking astatine nan floor plan below, you tin spot really consistently nan quarterly dividend has grown complete nan past decade.

ycharts.com

ycharts

Evaluating The Safety Of The Dividend

When evaluating nan information of a dividend, galore investors mention to nan payout ratio, which typically is referring nan EPS payout ratio. JNJ's EPS payout ratio is presently only 45%, which suggests nan dividend is plentifulness safe and has room to proceed growing.

However, I for illustration to look further astatine nan free rate travel ("FCD") yield, arsenic free rate travel is wherever nan dividend is really paid from. JNJ presently has a FCF payout ratio of 68%, which tells a drastically different story. Still, nan dividend seems plentifulness safe, but if nan suit appeals do not spell nan measurement of JNJ, this could perchance put added unit connected nan increasing dividend.

Speaking of dividend growth, we person already seen that Johnson & Johnson has hiked nan dividend for 60 consecutive years. Over nan past 5 years, nan institution has an mean dividend maturation complaint of 6.1%, a level they hit successful 2022 erstwhile nan dividend was hiked 6.6%. JNJ has paid a dividend each twelvemonth since 1944.

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Dividend Hike

What Happens To The Dividend After The Kenvue Spinoff?

As I mentioned earlier, JNJ will beryllium spinning retired its user wellness conception successful Q4 2023. In position of revenue, nan user wellness conception generated $14.95 cardinal successful sales, which accounted for 15.7% of nan company's full sales. This makes nan user wellness conception really nan smallest of nan 3 operating segments for nan business.

Once nan user wellness segment, Kenvue, spins disconnected from Johnson & Johnson, it will return connected nan liability from nan talc lawsuits, which should past put nan original JNJ clear from immoderate liability. Kenvue plans to salary a quarterly dividend, but nan magnitude is still undetermined.

The measurement I envision it playing retired is very akin to really nan AbbVie (ABBV) spinoff from Abbott Labs (ABT) took effect, meaning I expect nan caller JNJ to reignite its dividend growth. These 2 sectors turn astatine a overmuch faster gait pinch beardown margins, which should let for much fierce dividend hikes.

Valuation

Given nan pullback we person seen successful shares of Johnson & Johnson, and fixed nan uncertainty up for nan U.S. economy, JNJ shares look alternatively appealing astatine existent levels for a number of reasons.

First off, if nan U.S. system does autumn into a recession, nan healthcare assemblage tends to execute rather good and what amended measurement to play healthcare than done JNJ, which has been dependable sailing for decades.

Secondly, nan institution has maintained an mean dividend output of 2.6% complete nan past 5 years. For accordant dividend payers for illustration JNJ, comparing nan existent output to nan five-year mean tin beryllium a measurement of valuing a stock. As noted above, JNJ presently sports a dividend output of 2.8%, which is connected nan higher broadside for them, indicating shares could beryllium undervalued astatine existent levels.

Next, analysts are looking for 2023 EPS of $10.52, propose 4% maturation from 2022. This would equate to a guardant net aggregate of 15.1x compared to their humanities mean of 17.2, again indicating shares of JNJ are undervalued.

fastgraphs.com

Fast Graphs

Investor Takeaway

Johnson & Johnson is 1 of nan awesome wellness attraction companies successful nan marketplace today. The risks astatine nan infinitesimal for nan institution dishonesty pinch nan company's ineligible vulnerability to their talc lawsuits that nan appeals tribunal overturned. Another consequence lies pinch nan Kenvue spinoff astatine nan extremity of nan twelvemonth and really successfully that goes.

However, Johnson & Johnson pays a accordant and increasing dividend that seems well-covered astatine nan infinitesimal successful position of safety. Johnson & Johnson's free rate travel besides indicates plentifulness of room for continued maturation successful nan adjacent future.

This article was written by

Mark Roussin floor plan picture

The #1 Service For Safe and Reliable REIT Income

Mark Roussin is an progressive Certified Public Accountant (CPA) successful nan authorities of California. Mark has worked arsenic a CPA, serving some nationalist and backstage Real Estate corporations for complete 10 years. Today, he provides his followers insights to some undervalued dividend stocks mixed pinch high-growth opportunities pinch a extremity of them reaching financial state successful nan long-term. Mark tends to put chiefly successful dividend stocks pinch a beardown accent connected Real Estate Investment Trusts (REITs). 

Mark has collaborated pinch "iREIT connected Alpha”, which is nan premiere marketplace work that provides nan champion regular in-depth REIT research. The work boasts a organization of for illustration minded investors that besides person complete entree to our various portfolios that you tin way successful real-time. Come cheque retired each nan exclusive contented today!

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DISCLAIMER: Mark is not a Registered Investment Advisor aliases Financial Planner. The Information successful his articles and his comments connected SeekingAlpha.com aliases elsewhere is provided for accusation purposes only. He asks that you execute your ain owed diligence aliases activity nan proposal of a qualified professional. You are responsible for your ain finance decisions. 

Disclosure: I/we person a beneficial agelong position successful nan shares of JNJ, ABBV either done banal ownership, options, aliases different derivatives. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

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