Time is one of investors' greatest allies. With enough patience, even a relatively small sum of money invested in an excellent company can yield substantial returns, especially when dividends are reinvested.
Case in point: Shares of Johnson & Johnson (JNJ 0.10%), one of the world's largest healthcare companies, have increased by 4,720% over the past few decades. The stock may have garnered more headlines due to various legal challenges over the past few years, but it remains an excellent long-term option, especially for income seekers. Here's the rundown.
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The secret to Johnson & Johnson's success
Medical care is always in high demand: So long as we get sick, this is one sector that will never disappear. However, specific companies in the industry can cease to exist. One reason they do is their failure to innovate. Even if healthcare never sleeps, it does evolve, and it's critical for companies aiming to be successful over the long run to keep pace with that evolution. Johnson & Johnson has done that admirably over the years.
Consider its pharmaceutical segment. Last year, the drugmaker had more than 10 medicines that each generated over $1 billion in sales. In 2014, Johnson & Johnson also had more than 10 drugs that were blockbusters. Some of them were the same as last year's, but some weren't -- because the company has developed and marketed newer therapies over the past decade that have replaced older ones.
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In a decade, Johnson & Johnson's lineup of approved products will look different yet again. However, one thing won't change: It will still have many drugs that reach the $1 billion annual sales mark. J&J has more than 100 programs in its pipeline. True, many of those are for therapies seeking label expansions. But the company also has some brand-new clinical compounds, at least some of which will make it through the rigorous clinical-trial testing phases and go on to be massively successful.
And we haven't even mentioned Johnson & Johnson's medtech business, where it markets a range of medical devices across several major therapeutic areas. Its operations are well diversified in the healthcare sector. That, combined with the company's innovative qualities, makes it likely to remain a leader in healthcare for a long time.
Johnson & Johnson can overcome its challenges
Johnson & Johnson has encountered some headwinds in recent years. It's facing thousands of lawsuits from plaintiffs who allege that its talc-based products gave them cancer. The company has attempted to resolve these issues through various settlement proposals, but so far, to no avail. These legal battles are worth monitoring, but the stock is attractive despite them.
The company is not at serious risk of bankruptcy. That's why it still has an AAA credit rating, which is even higher than that of the U.S. government. Several judges have shot down its attempts to settle these lawsuits via a bankruptcy maneuver through a subsidiary, partly because of the company's underlying financial strength. While it's hard to know how this saga will end, my view is that Johnson & Johnson will continue performing well long after the dust settles.
NYSE: JNJ
Key Data Points
Here's another potential challenge Johnson & Johnson faces: Some of its therapies will generate significantly less revenue in the next few years, due to either patent cliffs or Medicare price negotiations in the U.S. Here again, J&J can handle this threat. The company's innovative ability is the best way to overcome this problem.
The healthcare specialist can also count on its medtech unit to pick up some of the slack. One attractive opportunity in this segment is within the robotic-assisted surgery (RAS) niche. Johnson & Johnson is developing its Ottava RAS system, which should grant it plenty of long-term revenue opportunities and help it navigate patent cliffs.
Of course, we can't talk about J&J without mentioning its dividend. The company has increased its payouts for 62 consecutive years, which makes it a Dividend King. This streak highlights, once again, how strong Johnson & Johnson's business is -- most corporations don't even last six decades, let alone pay dividends for that long. The stock is an excellent pick for long-term, income-oriented investors.
