With an AAA credit rating and mountainous operating cash flow, Johnson & Johnson (NYSE:JNJ) boasts one of the best balance sheets in biopharma.
In this clip from The Motley Fool's Industry Focus: Healthcare, analyst Kristine Harjes and contributor Todd Campbell explain why this company's financial prowess makes it a gold medal-winning stock.
A full transcript follows the video.
This video was recorded on Feb. 14, 2018.
Kristine Harjes: I would feel bad not giving Johnson & Johnson a gold medal for something, because they are a highly competitive company. So in my next category, I will make the competition financial fortitude, and, of course, give the gold medal to Johnson & Johnson.
I'll start with the obvious. They have a triple-A credit rating. They're one of just two companies, the other being Microsoft, that has that rating, which is higher than that of the U.S. government. This is just about the lowest-risk stock that I can think of. They have more than 260 different businesses, they have three different operating segments. If you're a regular listener to the show, I'm sure you can name them with me. It's Consumer Products, Medical Devices, Pharmaceuticals. At the end of 2017, Johnson & Johnson reported $16 billion in cash and short-term investments on their balance sheets, and this was before the change to the U.S. tax code that led to repatriation of $66 billion in foreign earnings, roughly $12 billion of which is immediately accessible. This wouldn't be a J&J pitch if I didn't talk about the dividend. Todd, you already started to talk about it a little bit, and I will elaborate. The company is part of a rare group of elite dividend payers known as the dividend aristocrats. Their yield is currently 2.6%. They have a cash dividend payout ratio of 50%, which is very healthy, and they're in no danger of not being able to raise it annually like they've been doing since 1963. So, to sum up, when it comes to financial fortitude, Johnson & Johnson gets the gold medal.
Todd Campbell: And you know what, Kristine? They generated almost $19 billion in operating cash, so I see why you like that one so much.