Berkshire Hathaway (BRK.A -0.23%) (BRK.B -0.28%) CEO Warren Buffett is a defensive investor at heart. As a result, Berkshire Hathaway's portfolio is heavily tilted toward dyed-in-the-wool value stocks – many of which pay generous and sustainable dividends. By taking this approach, the Oracle of Omaha has been able to markedly outperform the broader markets since he took the reigns of the diversified conglomerate back in 1965. Underscoring this point, a $1,000 investment in Berkshire Hathway stock at the start of Buffett's tenure as CEO would be worth an astonishing $1.82 million today.
Which Buffett stocks are worth owning in this turbulent environment? If you're like me and you're a tad concerned about the lack of demand in the commercial real estate sector, rocketing bond yields, and stubborn levels of inflation, then quality is going to be a major factor in your buy or sell decisions in regards to stocks in the coming months. With that in mind, I think the healthcare titan Johnson & Johnson (JNJ 0.47%) is a must-own stock right now. Here is a brief overview of why defensive investors may want to consider buying this top-notch dividend and value stock.
Image Source: Getty Images.
An attractive mix of income, value, and innovation
Berkshire Hathaway has owned J&J stock since 2006. Moreover, J&J is the only major pharmaceutical stock to consistently call Berkshire Hathaway's portfolio home over this 17-year period. The key reason is that Buffett prefers to own businesses with wide economic moats, which are next to impossible to establish in the pharmaceutical industry because of the limited shelf life of patents that protect key revenue drivers from competition.
Pharmaceutical companies also have to contend with a slew of other headwinds like political pressure over drug prices and lightning-fast innovation. Both issues can significantly erode a company's earnings power in an exceptionally short period of time. Buffett, by contrast, prefers to own businesses that can deliver sustainable levels of profitability in perpetuity.
So what makes J&J stand out from the crowd? Three key issues. First and foremost, J&J's above-average spend on research and development has kept its pharmaceutical division (known as innovative medicine) firmly on the growth path for the bulk of the prior 20 years. J&J's Q3 results underscore this point.
Despite shrinking sales for aging stars like the cancer drug Imbruvica and immunology juggernaut Remicade, the company posted worldwide adjusted operational sales growth of 4.4% for the three-month period. J&J attributed this mid-single-digit revenue growth to a suite of newer growth products, such as the multiple myeloma treatment Darzalex, among several others.
Second, J&J has boosted its dividend for 61 straight years. This feat is exceptionally rare in healthcare, and doubly so in the world of big pharma. At some point, most of these companies face a major competitive threat that forces management to rethink their shareholder rewards programs.
Third, J&J is only one of two U.S. companies that carries a AAA-rated balance sheet, according to Standard & Poor's analysts. What's particularly impressive about this achievement is that the vast majority of big pharma/medical device companies ultimately fall into the debt trap in an effort to replace aging blockbusters and stay ahead of the competition. J&J, for its part, sports a long-term debt-to-equity ratio of 45.1%, which compares favorably to its peer group average of 53.9%.
Key takeaway
In all, J&J is a financially strong healthcare company with an impressive track record of both innovation and regular dividend increases. That's a potent combination that ought to translate into solid returns for shareholders over the long term.
