What happened

Shares of Johnson & Johnson (NYSE:JNJ) were sinking by 5.9% as of 3:31 p.m. EDT on Friday after the healthcare giant announced a recall of a single lot of its Johnson's Baby Powder. J&J stated in a press release that the recall was initiated "out of an abundance of caution" based on the results of a U.S. Food and Drug Administration (FDA) test that found "sub-trace levels" (no more than 0.00002%) of asbestos contamination in a bottle of its baby powder.

So what

The recall of one lot of a product might not seem like a big enough issue to cause one of the largest companies in the world to lose over $20 billion in market cap. However, the news spooked investors because it highlighted the risk for Johnson & Johnson as it faces multiple lawsuits related to alleged asbestos contamination of its baby powder products.

Baby powder on a black surface next to a pink plastic bottle

Image source: Getty Images.

J&J stated that it's too early to know if there were actually any problems with the lot in question. The company hinted that there could be other causes for the sub-trace presence of asbestos in the single bottle tested by the FDA, including cross-contamination of the sample.

Previous testing conducted by Johnson & Johnson, as well as testing conducted by the FDA, has not found asbestos contamination in the company's baby powder. J&J said that "thousands of tests over the past 40 years repeatedly confirm that our consumer talc products do not contain asbestos."

Now what

Investing in solid dividend stocks like Johnson & Johnson usually means lower volatility than investing in other stocks. However, J&J's asbestos-related legal battles make today's news about its recall more important than it would otherwise be.

Should J&J's recall lead to the discovery of further problems related to asbestos contamination, the stock could take a further beating. However, there's no reason at this point to think this will happen.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.