Will Johnson & Johnson's Dividend Keep Climbing?

Johnson & Johnson (JNJ 0.33%) is a household name in healthcare, with popular consumer products like Band-Aid bandages and Tylenol over-the-counter pain-relief medicine. What many people don't realize about J&J is that it's also a giant throughout the healthcare field -- its branded prescription-drug business has enjoyed immense growth in recent years.

Johnson & Johnson also makes useful medical devices, and among all of its businesses, the company has been able to sustain an impressive track record of dividend growth that goes back decades. Investors want to know now whether the blue chip Dow component will be able to keep its dividend yield of 2.5% and extend its streak of rising annual dividend payments well into the future.

Dividend stats on Johnson & Johnson

Source: Yahoo! Finance. Last increase refers to ex-dividend date.

The impressive streak of Johnson & Johnson dividend growth

Johnson & Johnson is a Dividend Aristocrat, but its track record of more than half a century of annual dividend increases is almost unparalleled. Only a dozen stocks can claim dividend growth of that magnitude, and the company hasn't skimped on increases, either. The company's most recent boost to its quarterly payment was announced back in May, and although the 5% increase was lower than its hikes in previous years, it was far greater than what would have been necessary if J&J wanted only to make a token increase to keep its streak alive.

JNJ Dividend data by YCharts.

It's hard to find a more consistent picture of long-term dividend growth than this chart, especially when you consider that the momentary spikes and dips are aberrations of the charting system and the timing of dividend payments toward the end or beginning of a year rather than true bumps on J&J's dividend road.

Will Johnson & Johnson's dividend keep growing as quickly?

There's little doubt that Johnson & Johnson's current dividend payments are sustainable. The healthcare giant pays out only a bit more than half of its earnings in the form of dividends, giving it plenty of latitude to make further increases, even if it suffers temporary hits to its bottom line. More importantly, retaining nearly half of its earnings allows J&J to consider major strategic alternatives as another way of putting its available cash to use. Reinvesting back into pharmaceutical businesses through major acquisitions has been a popular strategy lately, and Johnson & Johnson's own acquisition of lung-treatment specialist Actelion is just one example of the wave of consolidation going on in healthcare, more broadly, and among drugmakers, in particular.

One concern that some investors have is that Johnson & Johnson's stock trades at a fairly pricey valuation. With a trailing earnings multiple of 22, J&J shares are more expensive than the overall stock market, and the rich valuation seems particularly high for a blue chip behemoth with far less growth potential than most of the smaller stocks in the healthcare sector.

Image source: Johnson & Johnson.

What bulls on Johnson & Johnson are banking on is the company's strong stable of pipeline drug candidates. Some of its most important drugs in development are targeting a wide variety of diseases, including various forms of cancer, hepatitis C, influenza, psoriasis, and insomnia. If even a fraction of J&J's potential blockbuster drugs pan out, it will go a long way toward replacing the revenue lost from other former high-sales medicals losing their patent protection.

J&J dividends: Worth counting on

Few stocks have been as consistent or reliable in their dividend policies as Johnson & Johnson, and the healthcare giant has given no reason for investors to expect bad news in the near future. In addition to its nearly unmatched track record of dividend excellence, Johnson & Johnson has plenty of potential for growth that could support not only higher payouts, but also rising stock prices in the years to come.