The world's largest healthcare company is about to get a little smaller. Recently, Johnson & Johnson (JNJ 0.25%) told investors it would spin off its consumer health business into a separate new company.

If you've been considering this dividend-paying stock for one reason or another, the impending spinoff isn't anything to worry about. In fact, it makes the stock significantly more attractive. Here's a closer look at the company's plans so you can see why.

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Consumer health just doesn't fit

Johnson & Johnson is a sprawling conglomerate with over a hundred separate subsidiaries divided into three operating segments: Pharmaceuticals, medical devices, and consumer health. Janssen, the company's pharmaceutical business is the largest and fastest-growing subsidiary of all. Pharmaceutical sales growth has outpaced the diverse medical-device segment but the company wants to keep these two segments together. That's because convincing physicians to order knee replacement gear isn't all that different from convincing physicians to prescribe a new cancer therapy.

Johnson & Johnson practically created the consumer healthcare business over 130 years ago, so cleaving it is going to feel weird at first. Once the dust settles, though, the spinoff will most likely work out well for investors.

In 2021, the consumer health segment is expected to record around $15 billion in revenue, a gain of roughly 7% over 2020. The still-unnamed new consumer health company will hit the ground running with 20 different brands generating over $150 million in annual sales.

Where the growth is

The 7% growth rate J&J expects to report for topline consumer health segment revenue this year is pretty good. Unfortunately, comparisons to 2020, when people shopped considerably less, are a little misleading. 

Operating Segment 2016 Revenue Q3 2021 Revenue Annualized 5-Year Annual Growth Rate
Consumer $13.3 billion $14.8 billion 2.2%
Medical Devices $25.1 billion $26.6 billion 1.2%
Pharmaceuticals $33.5 billion $52.0 billion 9.2%

Data source: Johnson & Johnson.

It's no wonder, Johnson & Johnson wants to focus on pharmaceutical sales. Over the past five years, pharmaceutical sales have increased at an impressive 9.2% annual growth rate. Over the same period, the company's other two segments struggled just to keep moving in the right direction. .

Contributions from the high-margin pharmaceutical segment also have a much stronger impact on the bottom line. Adjusted income before taxes from the pharmaceutical segment worked out to $5.7 billion in the third quarter. Pre-tax profits from medical devices and consumer health came in at $1.7 billion and $0.9 billion respectively.

Looking ahead

If you're interested in buying shares of Johnson & Johnson before they become two, you have plenty of time to think it over. The company is targeting the completion of the planned separation in 18 to 24 months. 

Shares of both new companies will initially have smaller payouts but don't let that bother you. Dividend payouts for both new stocks are expected to add up to the same amount shareholders receive ahead of the split.

At recent prices, Johnson & Johnson shares offer a juicy 3.1% yield and investors can expect a much larger yield on their original investment down the road. The company is a dividend aristocrat that hasn't gone a whole year without raising its payout since JFK was in office.

Johnson & Johnson's dividend program is on such solid footing that steady raises in the years ahead shouldn't be a problem. Over the past 12 months, the company used just 42% of the free cash flow generated by operations to make dividend payments. 

This dividend-paying healthcare stock might not be perfect for every investor, especially those willing to take high risks in return for a shot at huge gains. While I wouldn't expect Johnson & Johnson to outperform the broad market by much, investors can reasonably expect two dividend payments that grow steadily for many years to come.