Investing in Dividend Kings is just one part of a solid long-term strategy. The attraction is that their long history of annual dividend increases (50 consecutive years or more) reflects well on the companies' business growth and stability.
That doesn't mean that they won't see their shares jump or fall; they're not immune to market volatility. It's just that in the long run, they are generally safer bets than most growth stocks that don't provide a dividend, especially since these stocks pay investors to hold on to them.
Johnson & Johnson (JNJ 0.82%), AbbVie (ABBV 1.07%), and Embecta (EMBC.V +0.90%) are Dividend Kings that represent good long-term investments. All three offer above-average dividends, and two have delivered triple-digit total returns over the past decade.
JNJ revenue (annual) data by YCharts.
1. Johnson & Johnson is dependable
Johnson & Johnson just announced on April 18 that it was raising its dividend for the 61st consecutive year. The latest boost is 5.3% to $1.19 per share per quarter. The yield at its current price is just under 3%, well above the S&P 500 average of 1.7%. The payout ratio is a little high at 68%, but the company's long history of stable cash flows makes that less concerning.
NYSE: JNJ
Key Data Points
The biggest knock against Johnson & Johnson is its lack of growth, and that's a fair complaint. Over the past 10 years, the company has grown annual revenue by 33%, well below the 209% that AbbVie has in that time.
However, if you take a deeper look, Johnson & Johnson paid off handsomely for investors over the past decade in total return and earnings per share (EPS). It also remains to be seen how much the company's revenue will grow once it completes its spinoff of its consumer healthcare segment (expected to be later this year), as that segment has had lower profit margins than the company overall.
The stock price is down a little more than 8% this year after it released first-quarter earnings on April 18 showing a $68 million quarterly loss due to a $6.9 billion one-time expense from its talc lawsuits. The company has agreed to pay $8.9 billion to settle the lawsuits, which claim that the companies' talc products caused various illnesses.
Other financial metrics explain why investors consistently stay with the company. In the first quarter, it reported revenue of $24.7 billion, up 5.6% year over year. Its guidance points to an eighth consecutive year of revenue growth, with 2023 revenue estimated between $97.9 billion and $98.9 billion, representing an increase of between 5.5% and 6.5%.
The company has two other segments besides consumer healthcare: medtech and pharmaceuticals. Consumer healthcare is the smallest of the three and will be spun off later this year as a new company, Kenvue. It brought in $3.5 billion in the quarter, up 7.4%, year over year, thanks to better over-the-counter product sales.
The pharmaceuticals segment reported $13.413 billion in revenue, up 4.2% over the same period last year, thanks to improved sales for multiple myeloma drug Darzalex, immunology drug Stelara, and prostate cancer therapy Erleada.
Medtech's sales rose 7.3% year over year to $7.41 billion, driven mainly by improved sales of electrophysiology products, contact lenses, artificial knees, and wound-closure products.
2. AbbVie will rebound quickly
Counting its time before 2013 as part of Abbott Laboratories, AbbVie has raised its dividend for 51 consecutive years, including a boost of 5% this year to $1.48 per share per quarter. The company has increased its dividend by 270% since the spinoff. The yield is around 3.7%, more than double the S&P 500 average. The payout ratio is 41%, which is considered plenty safe.
NYSE: ABBV
Key Data Points
AbbVie's blockbuster immunology drug Humira brought in $21.2 billion last year, but the company said it expects its sales to decline 37% this year, thanks to the introduction of biosimilar competition in the United States.
For the time being, the drug will still pull in big numbers because, while seven Humira biosimilars are expected in 2023, only one has launched: Amgen's Amjevita.
That biosimilar's top price tag is only 5% less than the $6,922 per month that Humira costs. Amjevita also comes in an unbranded form that costs 55% less than Humira, according to Reuters, but many pharmacy benefit managers will use the pricier version because the pricing system will benefit them.
As Humira's revenue declines, though, the company's other two leading immunology blockbusters, Skyrizi and Rinvoq, will continue to add indications and increase revenue. The two drugs combined for $7.7 billion in sales last year, up 67%.
AbbVie management said it expects the pair to be worth $15 billion in annual sales by 2025. Rinvoq was just approved in Europe to treat Crohn's disease (CD), a type of inflammatory bowel disease (IBD), and the company has said it expects an approval in the U.S. this year for CD as well. The drug is also in phase 3 trials to treat giant cell arteritis (an inflammation of the lining of the arteries) and Takayasu arteritis (inflammation of the aorta, the main artery that carries blood to the heart).
Skyrizi just did well in a phase 3 study to treat ulcerative colitis (UC), which is an IBD that causes damage to the gastrointestinal tract. The company said it is hoping for an approval by the Food and Drug Administration in 2024.
Skyrizi is already approved to treat CD in adults, and between that and UC, more than 1.4 million Americans are affected by the two conditions, according to the Crohn's & Colitis Foundation, so the drug's target group is expanding, along with Rinvoq's.
The company has more than 90 programs in its pipeline, and more than half of those are in phase 2 or phase 3 trials. The company spent deeply on research and development the past few years, including $6.4 billion last year. Eventually, that will pay off.
AbbVie had $13.77 in adjusted annual EPS in 2022, and this year, it expects adjusted EPS to be between $10.70 and $11.10. In 2024, the company said it expects EPS to be no lower than $10.70, and by 2025, it says it expects to get back to revenue growth. While it may take a while for AbbVie to get back to its current numbers, the path there is pretty clear.
3. Embecta is a hidden king
Like AbbVie, Embecta inherited its Dividend King status. The company, which is the global leader in insulin delivery devices for diabetes patients, split off last year from medical device maker Becton, Dickinson & Co., which has increased its dividend for 51 consecutive years.
NASDAQ: EMBC.V
Key Data Points
In the first quarter of fiscal 2023, Embecta reported revenue of $275.7 million, down 4.7% year over year. Net income of $35.2 million was down from $98.8 million a year ago, and EPS of $0.61 fell from $1.73 in the same period in 2022.
But those numbers might be misleading because the company's financial results before its spinoff last year were done on a carve-out basis of accounting, not exactly how Embecta would have done it as a stand-alone company. On top of that, Embecta is still in the transition stage as a new company and has added expenses as it fully separates from Becton, Dickinson.
More importantly, the company is doing better sequentially. First-quarter revenue was up 0.04% over the fourth quarter, and EPS in the first quarter was $0.61, compared to a loss per share of $0.30 in the fourth quarter.
Embecta's quarterly per share dividend is $0.15, which equals a yield of around 2% and means the company technically has increased its dividend for 51 consecutive years. The dividend has plenty of room to grow as the current payout ratio is only 2.2%.
Share prices are down more than 13%, but the growth in the diabetes-care market works in the company's favor. One-in-10 people in the world have been diagnosed with some form of diabetes, and the number of cases is rising, especially in emerging markets, due to an aging population, lifestyle factors, and improved medical care.
According to the International Diabetes Foundation, the number of people living with diabetes is expected to jump to 643 million by 2030 and to 783 million by 2045.
