When you used to think of Band-Aid bandages and Tylenol, you probably thought of healthcare giant Johnson & Johnson (JNJ -0.46%). That's because the company owned these and other top consumer health products -- at least, it did until recently. This summer, J&J completed its spinoff of its consumer health business, forming a new company called Kenvue (KVUE -0.84%).
This left J&J with two other units -- pharmaceuticals and medtech -- and set Kenvue off on the road to growing the consumer health business independently. Both companies make interesting buys today for their product portfolios and dividend payments. But if you could only choose one of their stocks to buy, which should you go for right now?
The case for Johnson & Johnson
J&J built its consumer health segment into an industry giant, but this part of its business still delivered lower growth than its pharmaceuticals and medical technology businesses. For example, consumer health sales rose less than 4% last year, while the other two units each generated sales growth of more than 6%. That unit also represented a smaller share of the revenue picture.
And that's why it was a great idea to spin off consumer health and focus the parent company's resources on higher-performing areas. Though J&J's star immunology drug, Stelara, faces a looming loss of exclusivity, with competitors entering the market in 2025, the company still is optimistic about increasing its overall pharmaceutical revenues.
It expects to meet its goal of lifting pharmaceutical revenue to $57 billion by 2025, which would be an almost 10% increase from last year's figure. Its optimism on that front comes thanks to major products such as oncology drug Darzalex and new launches. In the most recent quarter, nine pharmaceutical products delivered double-digit percentage gains.
J&J has nearly 100 candidates in its pipeline, and has reported encouraging data on key hopefuls such as JNJ-2113 for plaque psoriasis. The company says that candidate represents a blockbuster opportunity that could extend across several disease areas.
J&J also is advancing in medtech, and its recent purchase of heart pump specialist Abiomed added a 12th platform with billion-dollar annual sales to its portfolio.
Finally, J&J is a Dividend King, meaning it has increased its dividend annually for at least 50 straight years. Today, it pays $4.76 per share, which based on the current share price gives it a yield of 2.93%. That's well above the S&P 500 index's current average yield of 1.5%.
The case for Kenvue
So consumer health wasn't the biggest revenue driver for J&J, but it's important to remember that it still is a pretty valuable business -- and could continue to grow. Consumer health delivered $15 billion in net sales last year as part of J&J, and it has made more than 100 new product innovations per year since 2020. This is good news for Kenvue as it gets started in its life as an independent company.
Its most recent earnings report showed positive signs, too. In the quarter, Kenvue reported organic sales growth of more than 7% and saw growth across brands and throughout geographies. Management also noted that its brand strength helped power sales even in a complex economic environment.
J&J's consumer health spinoff clearly benefited J&J, as mentioned above, but it also should help Kenvue. As a pure-play consumer health business, Kenvue can be more agile when it comes to making decisions and investments. The company also says it's seeing improvements in efficiency in everything from research and development to advertising.
The consumer health business has a track record of delivering more than $2 billion in cash flow annually, and Kenvue expects this to continue. This is great because it will allow the company to meet goals such as offering dividends and paying down debt -- and it means Kenvue also has some cash for potential acquisitions.
Finally, speaking of dividends, Kenvue pays $0.80 a share annually, giving it a yield of 3.62%, and management has emphasized that it's commited to returning cash to shareholders.
J&J or Kenvue?
To answer the question of whether you should buy J&J or Kenvue shares right now, start by considering their valuations. Today, both stocks trade for about 16 times forward earnings estimates. That's a reasonable price for either, considering their strong product portfolios and the promise of passive income.
But if I had to choose just one, I'd favor J&J for one simple reason: Kenvue may not offer as much growth over time. J&J, when launching the spinoff, kept its strongest growth assets, and they should accelerate the pace of its growth. Recent performance, as mentioned above, indicates it's on the right path. And that's why J&J is a top healthcare stock to buy today.
