Johnson & Johnson (JNJ 0.29%) has long been plagued with lawsuits alleging its talcum products contain the cancer-causing substance asbestos. Unluckily for Johnson & Johnson, these allegations are a series in a long line of legal troubles. Just in October 2019, Johnson & Johnson was directed to pay $8 billion in damages to plaintiffs for pressuring medical providers to prescribe Risperdal to patients.
At the time of this article, Johnson & Johnson is embroiled in a stream of over 16,000 asbestos-related legal actions filed by enraged consumers. The stakes were raised even higher when just two days into the New Year, the state of New Mexico filed a civil claim against Johnson & Johnson for allegedly deceiving users regarding the safety of its talc products. This is one of the first times ever that an asbestos lawsuit has been filed by a state, rather than a person, against a pharmaceutical manufacturer.
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Needless to stay, the steady stream of lawsuits pummeling Johnson & Johnson has some investors concerned. But, Johnson and Johnson has seen considerably positive returns over the past year. Here's why Johnson & Johnson will likely be able to weather this storm in the months ahead.
Johnson & Johnson showed healthy earnings growth in the third quarter
In Johnson & Johnson's Q3 report, released in October 2019, the company showed a strong year-to-year revenue boost of 1.9% with sales totaling more than $20 billion. Factoring out certain currency irregularities, the company experienced an operational growth rate of 3.2 percent on a year-over-year basis. Earnings-per-share also exceeded analyst's projections in Q3, with an adjusted value of $2.12.
A company's cash flow is also an excellent measurement of the valuation and risk attached to a particular stock. At the close of the Q3, Johnson & Johnson had produced a year-to-date free cash flow of just under $20 billion. Both Johnson & Johnson's earnings report and cash flow are indicative of the company's strong overall financial health.
Johnson & Johnson will release its Q4 earnings on January 22, at which point stockholders should take a close look to assess whether its operations continue to forecast positive performance and guidance in the new year.
Johnson & Johnson's global footprint continues to expand
Despite the fact that the lion's share of Johnson & Johnson's sales is U.S.-based, the company continues to expand its worldwide footprint. Its Q3 report announced that consumer product earnings increased by 3.3% year-over-year, with worldwide revenue growth of 3.2%.
The company's pharmaceutical sector grew by a monumental 6.4%, with one of the most notable contenders being the plaque psoriasis drug Tremfya. In the final week of December, China put its stamp of approval on imports of Tremfya into the country, which will almost certainly lead to a healthy spike in Johnson & Johnson's gross sales and net income.
It's tough to beat Johnson & Johnson's dividend payout
One of the primary reasons Johnson & Johnson stock has been so attractive to investors in the past is its excellent dividends. The current 2.65% dividend rate is certainly less than other stocks on the market, but Johnson & Johnson's consistent pattern of increasing its dividend payout year-to-year is more than a little attractive to long-term investors.
For example, if you were to invest $20,000 in Johnson & Johnson stock today, you'd receive $530 annually in dividends. Assuming Johnson & Johnson continues its long-standing pattern of annually increasing its dividends, that figure would only grow.
Even amid growing consumer claims, Johnson & Johnson has paid out $9.8 billion of its nearly $20 billion in free cash flow over the past year. All things considered, it appears that litigation likely won't impact investor dividends anytime soon.
The bottom line
Despite the fact that Johnson & Johnson has been slapped with over 100,000 lawsuits in recent years, its overall growth has been steady, albeit slow. A huge factor in Johnson & Johnson's resilience despite an eroding moat has been its clear diversification strategy. With its hands in everything from medical devices to pharmaceutical products, Johnson & Johnson has weathered many a legal storm in its time and come through relatively unscathed.
I'm not saying investors should disregard the potential impact that future lawsuits could have on the company's top and bottom line -- but for now, alarmism seems premature.
