Johnson & Johnson (JNJ -0.72%) didn't have a great year in 2019. Sure, the stock was up 13%. However, that wasn't even half the gain that the S&P 500 index delivered last year. J&J was bogged down by opioid-related litigation, more worries that its talc-based products contain asbestos, and anemic growth.
But it's not a good idea to base an opinion about any stock on one problematic year, especially the stock of a company that's been in business for more than 130 years. Is Johnson & Johnson stock a buy now? The answer: It depends.
Investors who prefer strong growth probably won't be attracted to Johnson & Johnson. Wall Street analysts project the company's earnings will grow by an average of less than 6% annually over the next five years. Growth-oriented investors can certainly find quality stocks that deliver much higher growth than that.
One problem for J&J is the continued decline in sales for Remicade. It wasn't too long ago that the immunology drug ranked as the company's top-selling product. With biosimilar rivals on the market, though, J&J can't depend on its former star. But Remicade isn't the only problem spot. Sales for cancer drug Zytiga are also sinking. Several other drugs in J&J's lineup aren't performing very well, including diabetes drug Invokana.
On a positive note, the company still claims multiple big winners. Sales growth for immunology drugs Stelara, Simponi, and Tremfya are offsetting the tanking sales for Remicade. J&J's cancer drugs Imbruvica (which it comarkets with AbbVie) and Darzalex continue to enjoy strong momentum. The company also has another potential blockbuster of the future that's just getting started with depression drug Spravato.
Johnson & Johnson's pharmaceutical segment remains its biggest source of growth, but what about its other segments? The company's consumer unit is at best treading water. However, net of the negative impact of divestitures, J&J's medical device segment is delivering modest revenue growth. Still, the overall story for the company is likely to be only so-so growth over the next several years.
A reasonable valuation
Bargain hunters probably won't jump up and down over Johnson & Johnson's valuation, but some might think that the stock is priced at a relatively attractive level. Shares currently trade at 16 times expected earnings. That's well below J&J's historical price-to-earnings (P/E) level.
On the other hand, Johnson & Johnson's valuation doesn't look as attractive when compared to some of its peers. Merck, for example, has considerably better growth prospects than J&J does but its forward earnings multiple is only a little higher.
My view is that Johnson & Johnson claims a reasonable valuation at current levels. But without the promise of great growth, a reasonable valuation might not be enough to justify the stock as a buy.
The main reason to buy J&J
However, there is one reason that I think does make Johnson & Johnson stock a buy: its dividend. Growth investors and value investors might turn up their noses at the stock, but income-seeking investors should really like J&J.
Investors buy dividend stocks because they want steady and reliable dividend payouts. Johnson & Johnson's dividend currently yields 2.6%, but what's even more appealing is the company's track record. J&J has increased its dividend for 57 consecutive years.
If you're looking for income, that's the kind of history you like to see. It also helps that J&J is well diversified across the healthcare space and operates more than 260 different businesses. This gives the company a broad revenue base that allows it to keep those dividends flowing -- and growing.