Will Johnson & Johnson Raise Its Dividend in 2018?

Just about everyone has some products from Johnson & Johnson (JNJ 0.67%) in their medicine cabinets, ranging from over-the-counter medicines like Tylenol and Benadryl to Band-Aid bandages. Yet what has driven Johnson & Johnson's growth lately -- both in its overall sales and in the dividends it pays to its shareholders -- has been the healthcare giant's pharmaceutical business.

With decades of dividend growth under its belt, Johnson & Johnson has given its investors reason to expect regular dividend increases each and every year. But are there any challenges that J&J faces right now that could jeopardize that long streak of rising payouts in 2018? Let's take a closer look to see what dividend investors should look for from Johnson & Johnson in the year to come.

Image source: Johnson & Johnson.

Dividend stats on Johnson & Johnson

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

What Johnson & Johnson has done with its dividends in the past

Johnson & Johnson's record of rising dividend payments dates back to the 1960s, and the company has done an excellent job of producing consistent dividend growth regardless of overall macroeconomic conditions or the particular environment the healthcare conglomerate faced in its own business. Over the past decade, most of the dividend increases J&J has implemented have been in the mid to high single-digit percentage range, and although that doesn't necessarily make any one particular year's moves noteworthy, they've added up over time to a quarterly payout that has roughly doubled since early 2008.

Yet some investors have bemoaned the fact that J&J's dividend growth has slowed. During the early 2000s, for instance, Johnson & Johnson routinely gave investors hikes of 10% or more, leading to a near-tripling of the payout between early 2000 and 2008. As the company has grown, it's been more challenging to sustain large dividend increases.

JNJ Dividend data by YCharts. Note: Minor dips and spikes are due to timing issues in dividend payments.

Most recently, Johnson & Johnson gave investors a 5% dividend increase earlier this year. That continued a trend of gradually slowing dividend growth, but it also came in the context of a large strategic move that required considerable use of cash for acquisition purposes.

How can Johnson & Johnson grow faster?

In the long run, Johnson & Johnson needs to grow its revenue and earnings in order to support higher dividend payments. That was a big part of the company's decision to buy Actelion, a major player in the pulmonary arterial hypertension treatment space. The $30 billion price tag raised some eyebrows, and the deal carries some risk that Actelion's pipeline of candidate treatments might not work out as well as many currently hope. Still, consolidation has been a rising trend in the pharmaceutical space, and like other pharma companies, Johnson & Johnson has had to use a combination of internal research and development and targeted acquisitions to keep its own pipeline full and sustain revenue levels.

Many investors have high hopes for Johnson & Johnson's business in 2018. Expansion in indicated uses for key treatments like Imbruvica, Simponi, and Stelara could add to revenue growth, and the acquisition of Abbott Medical Optics in the medical device space should help to bolster that segment's fundamental performance as well. Those following the stock expect Johnson & Johnson to produce record earnings in 2018, and that's exactly what dividend investors want to hear when they're considering the likelihood of a payout increase.

Can Johnson & Johnson shareholders expect a 2018 dividend hike?

Right now, it would take an unforeseen hit to Johnson & Johnson's business to threaten the company's long streak of dividend increases. Absent that, shareholders should expect another increase in the mid-single-digit percentage range, with a raise to $0.88 or $0.89 per share on a quarterly basis being the most likely outcome around mid-year. Anything markedly different from that would signal a substantial change in Johnson & Johnson's dividend strategy.