Investors looking for reliable dividend stocks to buy will inevitably run into Johnson & Johnson (JNJ 0.82%). The stock offers an above-average yield, and it's a Dividend King that has raised its payout in each of the past 60 years.
This April, the company will most likely declare its sixty-first consecutive annual dividend raise. A disappointing performance in the fourth quarter of 2022, though, left investors more than a little worried about long-term growth.
Is Johnson & Johnson still a good dividend stock to buy or should you look elsewhere to bolster your passive income-generating portfolio?
Segments that used to drive growth are contracting
When Johnson & Johnson reported results from 2022's Q4, investors were disappointed by declining overall sales. Total revenue declined 4.4% year over year to $23.7 billion. Reduced COVID-19 vaccine sales and a stronger U.S. dollar were largely to blame.
In recent years, Johnson & Johnson has relied on its pharma and medical device segments for growth, while its much older consumer health business stagnated. To become a more streamlined business, the company intends to spin off its consumer health business into a separate company, to be named Kenvue, in the second half of 2023.
With the proposed spinoff of its consumer health division expected later this year, a year-over-year revenue contraction from the pharmaceutical and medical technology segments was downright disturbing.
Looking ahead
During its Q4 earnings call, Johnson & Johnson reiterated some lofty sales growth expectations for the next several years. Pharmaceutical sales that came in at $52.6 billion last year are expected to reach $60 billion in 2025.
Hitting its $60 billion target is going to be an enormous challenge thanks to declining sales of two key products. First, a blood cancer drug called Imbruvica is losing market share to more recently launched treatments that work along similar lines. Calquence from AstraZeneca (AZN 2.31%) is already the most popular option for new chronic lymphocytic leukemia (CLL) patients in the U.S.
Competition for Imbruvica will intensify in 2023. About a week ago, the U.S. Food and Drug Administration (FDA) approved Brukinsa from BeiGene (BGNE 1.10%) to treat CLL patients after it outperformed Imbruvica in a head-to-head trial.
In addition to sliding Imbruvica sales, Johnson & Johnson will have to overcome fierce biosimilar competition for Stelara expected to begin near the end of 2023. Sales of this anti-inflammation injection reached $9.7 billion last year. Biosimilar competition isn't as fierce as generic competition for small-molecule drugs. That said, many investment bank analysts don't think the company can push total pharmaceutical sales up to $60 billion by 2025 after considering the serious challenges in front of Stelara and Imbruvica.
A buy now?
Shares of Johnson & Johnson offer a 2.7% yield at recent prices. Once Kenvue spins off from Johnson & Johnson, investors will likely begin receiving distributions from both stocks that equal or slightly exceed pre-split amounts.
Johnson & Johnson offers a yield that's above average for dividend-paying stocks in the benchmark S&P 500 index, but this won't help you retire comfortably if it doesn't raise that payout by more than a few pennies each year.
As key pharmaceutical products lose market share, J&J could have a hard time boosting its payout at a pace that satisfies investors. Those who already have shares of Johnson & Johnson in their portfolio should continue holding them. Right now, though, you can probably find better dividend stocks to buy.
