Observers in some quarters put the risk of a U.S. recession over the next 12 months in the 40%-to-50% range. With that in mind, investors would be wise to start hedging their portfolios accordingly with companies that can better navigate these challenging economic waters.

Preeminent healthcare company Johnson & Johnson (JNJ 0.87%), with 60 consecutive years of dividend growth under its belt, is a poster child for stability. Is the stock a buy for income investors now? Let's dig into J&J's fundamentals and valuation to arrive at an answer.

Sales and earnings are steadily climbing

In mid-July, Johnson & Johnson released its financial results for the second quarter, ended June 30, and the company surpassed analysts' consensus estimates.J&J recorded $24 billion in sales, up 3% over the year-ago period -- and slightly ahead of the $23.9 billion average analyst estimate. What was behind J&J's seventh sales beat out of the last 10 quarters?

Growth in the company's pharmaceutical segment was able to more than offset slight revenue declines in its consumer health and med tech segments.  Revenue from pharmaceuticals surged 6.7% higher year-over-year to $13.3 billion. This was driven by exceptional performance from the company's oncology products, which posted $4 billion in sales for the quarter, up 14.3% over the year-ago period. The bulk of this growth was the result of  skyrocketing revenue for Darzalex, a monoclonal antibody treatment, which saw sales rise 38.6% year-over-year to $2 billion.

Sales in the consumer health segment, which J&J is planning to separate into a new company, declined 1.3% year over year to $3.8 billion. A weaker allergy season, supply chain disruptions, and regional COVID-19 disruptions to the skin health/beauty franchise led to these results.Finally, the med tech segment generated $6.9 billion in sales for the second quarter. This was a 1.1% decline over the year-ago period, which was due to COVID-19 mobility restrictions and labor and supply chain issues.

On the bottom line, J&J reported $2.59 in non-GAAP adjusted diluted earnings per share in the second quarter, which was 4.4% higher than the year-ago period. This was just ahead of the $2.57 analyst consensus for the quarter. For all of the past 10 quarters, the company has exceeded the average analyst earnings forecast.

J&J's non-GAAP net margin edged 40 basis points higher over the year-ago period to 28.8%. Paired with a 0.1% reduction in the average outstanding shares count to 2.7 billion, this explains how the company's earnings grew faster than sales during the second quarter.

And thanks to population growth and J&J's size and scale, analysts expect 4.4% annual earnings growth to continue through the next five years.

A doctor talks to a patient.

Image source: Getty Images.

The market-topping dividend is well-covered

J&J boasts a 2.6% dividend yield, which is significantly higher than the S&P 500 index's 1.6% yield. Best of all, the company's dividend appears to be exceptionally safe, with room to grow.

This is supported by the fact that J&J's dividend payout ratio is projected to be 43.7% in 2022. Since the company will retain more than half of its earnings this year, there should be plenty of capital left over for J&J to fund research and development and complete acquisitions to support future growth. This should position its dividend to grow ahead of earnings for the foreseeable future, which is why I am expecting 6% to 7% annual dividend growth moving forward.

A goldilocks valuation

J&J is doing well from a fundamentals aspect. And the cherry on top is that the stock price doesn't appear to be excessive either. This is evidenced by J&J's forward price-to-earnings ratio of 17.2, which is only slightly higher than the healthcare industry average of 15.7. A premium of less than 10% for a battle-tested Dividend King like J&J is a buy signal in my opinion.