Did you know that earning an average return of 14% every year can turn a $20,000 investment into $1,000,000 in 30 years? You don't have to swing for the fences and look for up-and-coming artificial intelligence stocks to potentially become a millionaire. Instead, a strong, consistently growing business that can generate above-average returns over the long haul can be sufficient.
Johnson & Johnson (JNJ 0.44%) is a stock that is popular with long-term investors because its fundamentals are solid, with the company generating strong profits year in and year out. Furthermore, it offers a reliable, growing dividend. Can this be an investment that helps you become a millionaire by generating above-average returns in the long run?
NYSE: JNJ
Key Data Points
The company's recent spinoff could help its growth prospects
Earlier this year, Johnson & Johnson spun off its consumer health division into what is now called Kenvue. That should be a net positive for the business because Johnson & Johnson's consumer segment was growing relatively slowly compared to other segments. The company can now focus on pharmaceuticals and making medical devices. Both areas generated operational growth (excluding the impact of foreign exchange) of over 6% in 2022, while the consumer health business rose at a rate of less than 4%.
Johnson & Johnson is facing some challenges because its top-selling drug, Stelara, begins losing patent protection this year. However, management believes that given its strong pipeline, it can still grow its pharmaceutical business to $60 billion in revenue by 2025 (up from $52.6 billion in 2022), and that's before factoring in any acquisitions.
Last year, the company also completed a $16.6 billion acquisition of heart pump maker Abiomed, which will also enhance its medical device segment. Johnson & Johnson's management says the deal will help it "expand our portfolio in the high growth cardiovascular markets."
Johnson & Johnson has also showed interest in next-gen healthcare technologies, acquiring Auris Health, a company that makes surgical robots, for $3.4 billion in 2019.
There are growth opportunities ahead for J&J, and the stock potentially appears to be a good buy.
What could hinder its returns?
The biggest obstacle for Johnson & Johnson right now are the tens of thousands of lawsuits it has related to its talc liabilities. Until that's resolved, there will be a cloud hanging over its future. What's encouraging, however, is that the company is working toward addressing that risk and putting those concerns to bed.
In April, J&J said it reached a talc settlement for $8.9 billion. It still needs approval from a bankruptcy court, but it has support from plaintiffs' lawyers. That $8.9 billion cost represents the present value of the total settlement of $12 billion that J&J will have to pay out over a period of 25 years. Overall, it's not a huge hit for a business that has generated more than $14 billion in profit in each of the past four years.
The bigger question mark may be whether Johnson & Johnson's growth rate will be sufficient over the years to make it the kind of investment that can generate consistent, above-average returns for the long haul. From 2012 to 2022, the company's sales rose from $67.2 billion to $94.9 billion. That averages out to a compound annual growth rate of just 3.5%. And over the past decade, the stock's total return (including dividends) was 145%, and would have grown a $20,00 investment to just under $50,000. While that's a decent return, investors clearly haven't been overly excited with the company's growth.
In order to be a millionaire-making stock without requiring a huge investment, Johnson & Johnson needs to significantly ramp up its growth rate.
Is this a stock that can get your portfolio to $1 million?
Johnson & Johnson's business is likely to keep growing, but I'm not convinced that the stock could get your portfolio to $1 million without a six-figure investment, even after three decades. There isn't an obvious catalyst that would suggest the company is on the cusp of something big and transformational that will attract many growth investors.
This is a safe healthcare stock to own, and it has been increasing its dividend for 61 consecutive years. There's value here for risk-averse investors, but it's not an investment I'd expect to consistently outperform the market and generate returns that can make you a millionaire.
