If you're looking for a reliable dividend stock that can deliver consistent income and growth, you should consider Kenvue (KVUE 0.51%), the consumer healthcare spin-off from Johnson & Johnson (JNJ 0.09%). Kenvue is one of the leading players in the consumer healthcare industry, with a portfolio of well-known brands such as Aveeno, Tylenol, Listerine, Neutrogena, and Band-Aid. Kenvue has a long history of innovation, quality, and customer loyalty, as well as a solid financial performance and dividend policy.
Read on to find out more about this top-shelf dividend stock.
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Kenvue: pros and cons
Kenvue has several competitive advantages that make it a dominant force in the consumer healthcare market. First, it has a diversified and resilient product portfolio that covers various categories such as over-the-counter drugs, oral care, skin care, wound care, and women's health. These products have strong brand recognition and customer loyalty and come with premium pricing power as a result of these features. Kenvue's world-class product portfolio thus sports industry-leading gross margins, which has been beneficial to the company's cash flow generation over the years.
Second, Kenvue invests heavily in research and development (R&D) to maintain its leadership position and introduce new products that meet the changing needs and preferences of consumers. Since 2020, the company's R&D efforts have resulted in the development of more than 100 new product innovations per year.
Third, Kenvue has a global presence and a balanced geographic mix that allows it to tap into the growth opportunities in both developed and emerging markets. Specifically, the consumer healthcare giant operates in more than 165 countries, with an especially strong foothold in high-growth markets including Brazil, China, and India.
Fourth, Kenvue's financial performance has been steady through the years, allowing it to offer a generous dividend program for shareholders. Turning to the specifics, the company has consistently grown its sales over the past decade, despite facing several major challenges, such as an ever-changing regulatory landscape, competitive threats from niche operators, and high-profile litigation issues.
In dividend terms, the consumer healthcare company pays a 3.47% annualized dividend yield at current levels, which is substantially higher than the 1.5% average yield of the S&P 500 Index and modestly higher than the 3.27% yield of its consumer healthcare peer group.
Kenvue isn't risk-free, however. Consumer healthcare is a fiercely competitive space characterized by abrupt shifts in consumer preferences and a rapid pace of innovation. Now, Kenvue's 135-year track record implies that it is flexible enough to change with the times, but this industrywide risk factor is important to consider.
Time to buy?
Kenvue is a top dividend stock to buy right now for several reasons. First, it offers a stable and growing income stream that can withstand economic downturns and market volatility. Second, it has a strong competitive position and growth potential in the consumer healthcare industry, which is expected to benefit from multiple tailwinds such as an aging global population and an increase in demand for self-care products.
Third, it trades at a reasonable valuation compared to its peers and the broader market. As of Aug. 29, Kenvue stock was trading at approximately 17.7 times projected earnings. For context, its closest peers in the consumer healthcare space trade at an average multiple of 21, and the average S&P 500 stock, as of this writing, trades at 19.8 times forward earnings. Kenvue's shares are cheap by comparison.
In all, Kenvue offers an attractive mix of value, reliable income, and sustainable growth, making it a worthwhile addition to either an income or value-oriented portfolio.
