Johnson & Johnson (JNJ -2.13%) and Dollar General (DG 0.21%) are traditionally strong, defensive stocks. That is, they do well in times of economic stress because they are in essential industries: healthcare in Johnson & Johnson's case, and consumer staples in Dollar General's.
Both companies deliver stable earnings, low volatility, and -- last but certainly not least -- dependable dividends. Let's dive into each one.
Johnson & Johnson delivers predictable growth
Johnson & Johnson stock traditionally has done well during downturns compared to the rest of the market. The company, thanks partly to its huge size (more than 44,000 employees and a market capitalization of $413 billion), has diverse revenue streams and sells a variety of healthcare products, including medical equipment and pharmaceuticals. These products are generally recession-proof because healthcare providers and patients need them, regardless of how the economy is doing.
During the Great Recession from December 2007 to June 2009, the S&P 500 average fell 37.9%. Johnson & Johnson, on the other hand, fell only 16.2% during that period, and if you count the company's dividend, its total return was a drop of 12.3%.
J&J has increased its annual revenue for seven straight years, and over the past decade, it has boosted annual revenue by 33.1% and earnings per share (EPS) by 39.9%. Its growth rate, because of its size, isn't phenomenal, but predictable. The company said it expects 2023 revenue to be between $97.9 billion and $98.9 billion. It also issued guidance of yearly EPS of between $10.60 and $10.70, up 5% at the midpoint.
The company has a chance to become even more profitable this year. It's in the process of spinning off its least profitable segment, consumer healthcare, into a new company, Kenvue (NYSE: KVUE), which went public May 4 with a $3.8 billion initial public offering.
In the first quarter, Johnson & Johnson reported revenue of $24.7 billion, up 5.6% year over year. Talc litigation expenses meant the company had a $68 million loss, but that was due to a one-time $6.9 billion charge.
Johnson & Johnson raised its quarterly dividend by 5.3% this year to $1.19 per share, the 61st consecutive year it has increased its dividend. The yield is roughly 2.14%.
The company has a huge pipeline of drugs, thanks to a research and development budget which towers over most companies' spending. Johnson & Johnson said it anticipates five potential drug approvals this year, and it is submitting seven new drug applications as well.
Dollar General keeps expanding
Dollar General's stock makes a good hedge against a market crash because the company sells essential, everyday products that people still need, even in difficult times. The company's reputation as a discount retailer particularly serves it well as people try to stretch their dollars. It operates more than 19,000 stores in the U.S. and Mexico.
The other thing that makes it a great defensive stock is its long record of profitability. Over the past decade, the company has increased annual revenue by 236% and EPS by 116%.
In the fourth quarter of fiscal 2022, the company reported revenue of $10.2 billion, a rise of 17.9% year over year, while yearly sales of $37.8 billion were up 10.6%. Same-store sales were up 5.7% in the quarter compared to the same period last year, and yearly same-store sales were up 4.3%. Net income for the quarter was listed as $659.1 million, up 10.3% year over year, and yearly net income was up 0.7% to $2.4 billion.
Dollar General also raised its dividend by 7.3% to $0.59 per share this year, the eighth consecutive year it has increased its dividend. The yield for the dividend is around 1.08%, below the S&P 500 average dividend yield of 1.66%, but the dividend's payout ratio of 20% means there's plenty of room for continued increases and little likelihood of a dividend cut.
The company has done several things to help its business -- adding refrigerated and frozen consumables, improving its supply chain by opening three new distribution centers, and doubling the size of the company's tractor fleet. Dollar General's stores benefit from significant customer loyalty because many of the stores are in underserved areas where there aren't many nearby grocery stores, such as inner cities and rural areas.
Dollar General was slow to adopt a digital strategy, but it has done a good job of catching up in recent years, including a mobile app that allows customers to total up items in the store to stay within their budget.
The company's guidance for 2023 includes 5.5% to 6% growth in revenue, same-store increased sales of 3% to 3.5%, and EPS growth of 4% to 6%. Dollar General also said it planned to open 1,050 new stores, remodel 2,000 current stores, and relocate 120 stores.
