It's been a transformational year for Johnson & Johnson (JNJ -0.46%). This August, the company spun off its consumer health division into a new company called Kenvue (KVUE -0.84%).
Now that Kenvue sells Listerine, Q-tips, and Tylenol, investors are concerned that the steady dividend raises Johnson & Johnson, or J&J, is famous for could come to an end.
Recently, J&J issued its first quarterly-earnings report since the Kenvue spinoff, and the results were better than expected. Let's look closer at the new, slimmer version of the healthcare juggernaut to see if it deserves a place in your income-generating portfolio.
Still beating expectations
The recent consumer-health separation might be the biggest shake-up of the company's 137-year history, but it hasn't hampered its ability to outperform expectations. Total sales rose 6.8% year over year to $21.35 billion, or $310 million more than Wall Street analysts had predicted. On the bottom line, adjusted earnings that reached $2.66 per share were $0.14 higher than consensus estimates.
In addition to beating Wall Street's estimates, J&J raised its own guidance regarding sales and earnings for the full year. The company expects to report total sales that rise 7.7% at the midpoint of its guided range. Adjusted earnings per share (EPS) are expected to rise 13% at the midpoint of management's guided range.
Johnson & Johnson raised its dividend payout for the 61st consecutive year this April, and further raises seem highly likely in the foreseeable future. Adjusted earnings are expected to reach $10.10 per share at the midpoint of management's guided range this year. That's more than enough to support a dividend payout currently set at just $4.76 per share.
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Riskier than usual
Management's estimates for 2023 are positive, and it's highly likely the company will raise its dividend payout again in 2024. That said, there could be more challenges up ahead than investors anticipate.
Stelara, a biologic drug for the treatment of psoriasis and bowel inflammation, is a key growth driver for Johnson & Johnson right now. Third-quarter sales surged 16.9% year over year to an annualized $11.5 billion, but this growth driver could run out of steam in 2025.
In September, a key patent protecting Stelara's market exclusivity in the United States expired. A few months earlier, Johnson & Johnson reached an agreement with Amgen to delay launching a biosimilar version of Stelara until January of 2025.
Before biosimilar competition begins heating up for Stelara, J&J could have to lower prices in the U.S. for this and two other top-selling products. Stelara, Xarelto, a blood thinner, and Imbruvica, a blood cancer drug that J&J sells in partnership with AbbVie, are on a list of top-selling treatments eligible next year for new drug-price negotiations with Medicare.
Still a buy?
At recent prices, J&J offers investors a 3% yield and a good chance to see steady dividend raises throughout their retirement years. Whether it's a good stock to buy right now, though, depends on the time frame you're working with.
With two-year treasury notes offering a guaranteed 5.2% yield at recent prices, the 3% yield J&J stock offers isn't too attractive unless the time frame you're working with is a long one. Loss of exclusivity for Stelara and negotiations with Medicare probably won't stop J&J from raising its dividend payout over the next several years, but these factors could significantly slow the pace of those payout bumps.
This is still a great stock to buy for investors with a lot of time to let the payout grow before they need to begin using the income their portfolio generates for everyday expenses. If you're already retired, or getting close, there are probably better dividend stocks to buy right now.
