Don't overlook this boring company's stellar reliability.
Johnson & Johnson (JNJ 0.53%) is one of the world's most recognized healthcare brands. Ironically, the consumer products like Band-Aids and Tylenol that consumers know it for are technically no longer part of the company after their spinoff as Kenvue.
Today, Johnson & Johnson is a two-headed monster focused on pharmaceutical and medical device innovations. The stock drifted for much of the past year despite the company's strong operating results.
It's unclear how long this will last, making the company a rare bargain in a market operating at all-time highs.
Here is what you need to know.
Johnson & Johnson: Still the rock-solid dividend stock you can count on
This has always been a stock that investors could buy and hold and not lose a wink of sleep over. The company's diversification and tremendous presence in healthcare made it a genuine blue-chip stock. Management has raised the company's dividend annually for 62 consecutive years, and the business has a AAA credit rating, higher than even the United States government's.
Spinning off its consumer products division, which made up the smallest part of its business, shouldn't hurt the company's stellar fundamentals. Although it was a rock-steady piece of the company, Johnson & Johnson spun off Kenvue to create value for its shareholders and align the company around its faster-growing business units. And it added $13.2 billion in cash to its coffers.
The company is now a force in pharmaceuticals (which management calls its Innovative Medicine segment) and medical devices (called MedTech), combining for what could be around $89 billion in revenue this year.
J&J's near-term performance looks great
Johnson & Johnson's earnings were a bit messy in 2023, but the business is operating at a high level through the noise. The company took a big hit to earnings per share (EPS) in the first quarter due to a $6.9 billion one-time charge for settling its talcum powder lawsuits. Adjusting that out, EPS in 2023 grew 11.1% to $9.92.
Both business units have made moves that could continue driving steady long-term growth. The Innovative Medicine portfolio is diverse, with pharmaceutical products in immunology, oncology, neurology, infectious diseases, and cardiovascular health. J&J is working to close a $2 billion acquisition of Ambrx Biopharma, which specializes in antibody-drug conjugates (ADC), adding long-term upside to the company's oncology portfolio.
The MedTech unit tells a similar story. It's well-diversified across orthopedics, surgical and interventional products, and vision products, like contact lenses.
Johnson & Johnson is bolting on new growth here, too. The company recently closed a $16.6 billion purchase of Abiomed, a leading company that designed and sold heart pumps. This addition will be accretive to earnings starting this year.
Having deep pockets gives it a competitive edge few companies have. Management can simultaneously invest internally to develop new pharmaceutical drugs and devices but can also open its pocketbook when there's a promising up-and-coming company waiting to break out.
Management guided for more growth in 2024, including adjustedrevenue growth of 5.5% and 7.4% earnings growth. It won't make you a millionaire overnight, but Johnson & Johnson's slow and steady excellent performance is highly effective if given enough time to compound.
What you're getting for your money
So, buy Johnson & Johnson today? What are you getting for your money? Shares are trading under 15 times 2024 earnings guidance, which is reasonable for a business growing its profits at a high-single-digit rate. When you factor in how dependable the company is, that's arguably a cheap price tag for one of the world's bluest blue chip stocks.
On top of that, there's another boost from the dividend, which yields 3% at its current share price. Thus, investors can expect around 10% total returns, factoring in the 7.4% earnings growth, barring some big stock valuation move.
Are there faster-growing companies out there? Of course. But Johnson & Johnson offers you a much higher floor than most investments can. That's worth something if peace of mind is essential to you.
Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kenvue. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
