Johnson & Johnson (JNJ +0.43%) is an elite dividend stock. The healthcare giant has increased its dividend payment for 62 years in a row. That qualifies it as a Dividend King, a company that has increased its dividend payment annually for at least 50 years.
The company also has a higher-yielding payout. At around 3.4%, it's almost triple the S&P 500's (^GSPC 1.33%) dividend yield, which is near a more than 20-year low at 1.2%.
The iconic healthcare company backs its high-yielding payout with a very healthy financial profile. Because of that, it's an ideal option for investors seeking a super-safe income stream.
NYSE: JNJ
Key Data Points
As healthy as it gets
Johnson & Johnson is like the Fort Knox of dividend stocks. The healthcare company has an AAA bond rating. That's tied for the best in the world and is higher than the U.S. government. This rating signifies that the company has a strong capacity to meet its financial obligations even during the deepest economic downturns.
The company, which had a more than $355 billion market cap, ended last year with only $12 billion in net debt ($25 billion in cash and $37 billion in total debt). Its total debt rose last year after it made several significant acquisitions, the biggest being its $13.1 billion all-cash deal for Shockwave Medical. It has deployed, announced, or committed $32 billion into inorganic growth opportunities over the past year, including its recently announced $14.6 billion all-cash deal for Intra-Cellular Therapies that should close early in the second quarter.
The healthcare behemoth can easily afford its current debt level. It generated roughly $20 billion in free cash flow last year. That was plenty of money to cover its dividend outlay ($11.8 billion). Johnson & Johnson produced abundant free cash flow even after investing an eye-popping $17.2 billion in research and development (R&D) to discover, develop, and test new innovative medicines and medical technologies.
Healthy growth ahead
Johnson & Johnson's heavy investments in R&D and acquisitions put it in a strong position to grow its revenue, earnings, and free cash flow in the future. The company expects its operational sales to rise by 2.5% to 3.5% this year to more than $90 billion. Meanwhile, it expects to deliver adjusted earnings per share growth of 5.2% to 7.2%. That excludes the impact of its pending Intra-Cellular acquisition.
The company's acquisitions will be a near-term headwind to its earnings growth. For example, Shockwave will shave $0.17 per share off its adjusted earnings this year due to the impact of financing costs. Meanwhile, Inter-Cellular could lop another $0.30 to $0.35 per share off its adjusted earnings this year, depending on when the acquisition closes and its borrowing rates.
However, these transactions should pay dividends in the future. For example, Shockwave will extend its position in the high-growth cardiovascular intervention segment, boosting its MedTech business' sales growth and margins. Meanwhile, Intra-Cellular has already launched a commercially successful therapy and has a robust pipeline.
The company's heavy investments in R&D also position it for future growth. It expects to achieve several milestones in its innovative medicine and MedTech division this year that will drive long-term value creation for shareholders.
As the company looks ahead, it's in a position to deliver 5% to 7% annual operational sales growth through 2030 and beyond. That should drive even higher adjusted earnings per share and free cash flow growth rates as it expands its margins. That growth positions Johnson & Johnson to continue increasing its dividend at a healthy rate for the foreseeable future.
A very fit dividend stock
Johnson & Johnson is an extremely safe dividend stock. The healthcare giant has an elite balance sheet and generates boatloads of free cash flow. That gives it the money to pay a growing dividend and invest heavily to continue growing its healthcare businesses. With more growth ahead, its dividend should continue to rise at a healthy rate, making it a core holding for any investor seeking a safe and secure income stream.
