Investing in excellent, dividend-paying companies and opting for dividend reinvestment is a great way to make money in the stock market. According to some estimates, 84% of the S&P 500's total return since 1960 can be attributed to dividend reinvestment.
Of course, past performance doesn't guarantee anything. Also, not all dividend stocks are created equal. Still, the evidence suggests that in the long run, companies that pay and raise their dividends outperform peers that don't. With that in mind, let's look at an excellent company to consider: Johnson & Johnson (JNJ +0.44%).
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A solid business
Before turning to some impressive facts about Johnson & Johnson's dividend history, let's look at its operations. After all, promises of future payout increases aren't worth much if they aren't backed by a robust business. In that regard, Johnson & Johnson stands out. The company is one of the largest drugmakers in the world with an impressive and diversified lineup of products.
J&J sells medicines within various therapeutic areas, including oncology, neuroscience, immunology, and infectious disease. In 2021, the company's total sales increased by 13.6% year over year to $93.8 billion. Some of its growth drivers included immunosuppressants Stelara and Tremfya as well as cancer therapies Darzalex, Erleada, and Imbruvica.
|
Product |
2021 Sales |
2020 Sales |
YOY Increase |
|---|---|---|---|
|
Stelara |
$9.1 billion |
$7.7 billion |
18.5% |
|
Tremfya |
$2.1 billion |
$1.3 billion |
57.9% |
|
Darzalex |
$6 billion |
$4.2 billion |
43.8% |
|
Erleada |
$1.3 billion |
$760 million |
70% |
|
Imbruvica |
$4.4 billion |
$4.1 billion |
5.8% |
YOY = year over year. Source: Johnson & Johnson.
Johnson & Johnson has several more products whose sales are still increasing. And the company has a very rich pipeline, with 53 late-stage programs. It earned about a half-dozen regulatory wins in the fourth quarter. A strong lineup coupled with a full pipeline should help Johnson & Johnson continue to record solid results to back up its payout increases.
The company's balance sheet is also robust. Its Standard & Poor's credit rating of AAA is the highest possible, and a sign of the company's financial strength.
Johnson & Johnson is going through a transformation, turning its consumer health segment into a stand-alone entity by the end of the year. On the one hand, the company will lose a source of revenue that also helped diversify its operations. Last year, its consumer health unit accounted for 15.6% of its total sales.
NYSE: JNJ
Key Data Points
On the other hand, the transaction will bring with it some benefits as well. First, the company will likely see stronger top-line growth since the consumer health unit is the weakest in this department. Sales of Johnson & Johnson's pharmaceutical segment increased by 14.3% year over year in 2021 to $52.1 billion. The company's medical devices unit reported sales of $27.1 billion, 17.9% higher than the previous year.
Meanwhile, consumer health revenue increased by a comparatively meager 4.1% year over year to $14.6 billion. And Johnson & Johnson will decrease exposure to plenty of potentially costly lawsuits once it sheds this segment. In my view, the company's operations will be even stronger following this transaction.
A storied dividend history
Johnson & Johnson is a member of the exclusive group of Dividend Kings, companies that have raised their payouts annually for more than 50 years in a row (59 years, in this case). That's impressive. And the dividend yield is currently 2.40%, well above the S&P 500's average yield of 1.27%.
The company's cash payout ratio of 55.8% also looks reasonable. There are likely many more dividend increases in Johnson & Johnson's future. Given the company's longstanding leadership in the pharmaceutical industry, its solid business, and excellent dividend growth prospects, this looks like an ideal stock to buy in 2022 and hold on to for a good long while.
