Johnson & Johnson (JNJ -0.46%) has proven its ability to deliver passive income growth to investors over time. The healthcare giant is a Dividend King, meaning it's increased its dividend for more than 50 consecutive years. And, just recently, the company reiterated its commitment to boosting dividends annually. So, there's reason to be confident that an investment in J&J could continue to drive the value of your portfolio higher -- without you doing a thing.
All of that sounds great, but there's another reason to like J&J, and it has to do with a massive secret weapon that may drive earnings growth today and over the long term. That could translate into share price performance, making J&J a dividend and growth winner for your portfolio. The secret weapon is worth more than $13 billion, and J&J seized it last year, thanks to a pretty bold move.
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J&J's bold move
We'll start with J&J's bold move: the decision to spin off its most well-known business, consumer health. Most of us know J&J thanks to Band-Aid bandages, Tylenol pain killers, and other popular consumer brands -- but these and other products became part of a new company, Kenvue, during last year's spinoff.
In spite of the consumer health products' popularity, this unit had been weighing on J&J's overall growth. So, the company decided to launch the separation and focus all of its resources on its higher-growth businesses of pharmaceuticals and medtech. For J&J, the separation equaled $13.2 billion in cash proceeds, a secret weapon that should help this market giant with something critical for its future success: pipeline growth.
This is particularly important today, at a time when J&J's biggest pharmaceutical product, Stelara, is facing a loss of exclusivity -- something that likely will weigh on revenue as competitors enter the market in 2025. The immunology drug brought in more than $9.7 billion in 2022 and delivered more than $8 billion in the first nine months of last year.
Now, with its $13 billion secret weapon, J&J could fund its internal pipeline and even acquire programs externally to boost future growth.
During an earnings call last year, the company called its appetite for acquisitions "voracious," and just recently J&J completed the purchase of medtech company Laminar for $400 million. Laminar is set to begin pivotal studies early this year of its investigational device to be used in non-valvular atrial fibrillation. J&J expects one-third of its 2027 medtech sales to come from new products -- so the Laminar purchase fits nicely into the company's growth strategy.
More than $5 billion in sales
As for the pipeline, J&J says it aims to deliver more than 20 new treatments and 50 expansions of current products by 2030. About 10 of these products could bring in more than $5 billion in peak year sales, and about 15 assets could generate $1 billion to $5 billion in peak year sales, the company recently said.
All of this should translate into an enterprise compound annual growth rate of 5% to 7% from 2025 through 2030 -- and at the same time, as mentioned above, J&J pledges to continue increasing its dividend and even consider share repurchases.
In the first nine months of 2023, J&J spent more than $10 billion on research and development (R&D) -- so it's fair to say the Kenvue proceeds could be viewed as about a full year of R&D investment. This offers J&J a significant boost that should help it beat challenges such as the loss of Stelara exclusivity -- and continue to pay off down the road. Meanwhile, J&J's more than $15 billion in free cash flow also should help the company grow and ensure dividend increases.
Of course, J&J still is a big pharma company so it won't grow as quickly as a young biotech -- but its $13 billion secret weapon should help this healthcare giant develop the products necessary to deliver steady revenue gains over time. That and dividend growth you can count on make it a top buy for any healthcare investor right now.
