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According to Susanna Kim of ABC News, dividend yield and dividend growth comprised 90% of the total nominal returns for investors in the S&P 500 between 1910 and 2010. You might rightly proclaim that dividend stocks are the cornerstone with which any successful long term portfolio is built.

Unfortunately for investors, dividend stocks can vary dramatically in quality. Sure, investors can in two seconds deduce whether one company has a higher yield than another over the trailing 12-months, but there's little substance in understanding how much a company has paid out if you don't understand what makes a company "tick" in the first place. In order to better understand this, you have to look at the growth, value, and sustainability of both the dividend as well as the company as a whole.

Today, we're going to do just that by pitting two healthcare juggernauts, Johnson & Johnson (NYSE:JNJ) and Pfizer (NYSE:PFE), against one another to see which one truly is the better dividend stock.

Growth
First thing's first: we can't have a great dividend stock if we don't have a business poised to grow behind that dividend payment.

Beginning with Johnson & Johnson, the company is set up as a three-dimensional healthcare conglomerate. Out of the $71.3 billion the company delivered in revenue last year, $28.1 billion came from global pharmaceutical sales, $28.5 billion from medical devices and diagnostics, and the remaining $14.7 billion from its consumer products segment.  

Tackling these operational segments in reverse, J&J's consumer products segment offers the lowest long-term growth prospects, but also provides a sense of stability since a number of the products offered are price inelastic. In other words, J&J supplies basic-needs healthcare products that provide the company's consumer segment with highly predictable cash flow.

The medical device and diagnostic segment is a bit of a near-term worry for J&J because increasing competition and reduced spending by hospitals in the wake of the Affordable Care Act's implementation has weighed on its margins. Over time I fully expect these pressures to alleviate, but it could dampen J&J's near-term prospects in this segment.

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Johnson & Johnson Q2 investor presentation. Source: Johnson & Johnson.

Pharmaceuticals, on the other hand, are J&J's bread and butter. Based on products introduced since 2009, no large-scale pharmaceutical company has even come close to catching Johnson & Johnson's $12.5 billion in total new drug sales. With high margins coming from this segment, and 21% year-over-year growth in pharmaceuticals in the second quarter, I'd say J&J overall is doing quite well. 

Pfizer, on the other hand, has witnessed its pharmaceutical segment struggle as patent exclusivity losses have taken their toll on the company's top- and bottom-line numbers. Pfizer has seen its exclusivity disappear on the all-time best-selling drug, Lipitor, along with Detrol, Viagra, Effexor, and Spiriva in select countries, within the past few years. Furthermore, it's set to lose its exclusivity on $3 billion per year drug Celebrex this year and its current best-selling drug, Lyrica, which treats nerve and muscle pain, in 2018.

Of course, it's not a complete wash, either. We're still talking about Pfizer here, a company that has been the face of pharmaceutical research and development for decades. The company's experimental breakthrough therapy palbociclib could be instrumental in recharging Pfizer's growth engine. This first-line estrogen-positive, HER2-negative breast cancer drug nearly doubled progression-free survival to 20.2 months from 10.2 months when given with Novartis' Femara compared to the Femara monotherapy arm. Further, it improved median overall survival by 4.2 months to 37.5 months in clinical trials. It could easily be a blockbuster drug. 

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Pfizer investor presentation. Source: Pfizer. 

However, when push comes to shove I'm giving J&J the win in this category.

Value
When considering value in the healthcare sector it can be a bit tricky since a lot of value can be derived from hypothetical patient pool and sales projections. Luckily, with J&J and Pfizer being healthfully profitable we have some fairly consistent apples-to-apples comparisons that can be made.

Here's a quick rundown of some pertinent data you should know about each company:

Company

Price/ Sales (ttm)

PEG Ratio

Forward P/E

Profit Margin (ttm)

Net Cash/ Debt

Johnson & Johnson

4.1

2.6

16.9

21.2%

$14.5 billion

Pfizer

3.8

4.3

13.3

20.7%

($3.8 billion)

Source: Yahoo! Finance. TTM = trailing 12 months.

As you can see from the data above, both pharmaceutical giants offer investors "value," it really just depends on what metric you're looking at.

Pfizer, for example, is notably less expensive based on its forward P/E and is also a bit cheaper than Johnson & Johnson relative to its trailing 12-month sales figures. However, we should keep in mind that a slower growth rate, as is evidenced by its higher PEG ratio, and a significantly less attractive cash position relative to J&J could make up that difference. When it comes to profit margins both companies are pretty much equal.

Unlike the growth metric above, the value metric leads us to what's essentially a tie between the two companies, depending on your perspective.

Sustainability
Finally, we should be looking for a dividend stock that can not only provide a solid business model and dividend growth now, but also 10, 20, or even 30 years from now, because that's when the big bucks are often made.

Looking first at Pfizer the big question left to be answered is at what point the company's top-line could be growing once again. Even if palbociclib is approved, it's unlikely to have a huge effect on Pfizer's sales with Celebrex and Lyrica set to lose exclusivity soon as well. It's possible that Pfizer's desire to purchase an overseas company and use a tax inversion to save itself money could become a profit driver, but admittedly its outlook is a bit murky.

Johnson & Johnson, though, doesn't look as if it'll have much issue continuing to grow both its sales and profits. Even though growth has slowed in its medical device and diagnostic segment, the purchase of Synthes gave J&J access to faster growing emerging markets, which should help buoy that segment. In consumer products, inflation-based price increases should remain reasonably easy to pass along to consumers. Lastly, within J&J's pharmaceutical segment a bevy of new products, led by licensed blood cancer drug Imbruvica, should more than offset the eventual exclusivity loss of Remicade.

The end result, as you can see below, is that J&J's consistency has allowed its dividend to increase in 52 straight years. Pfizer has also delivered strong dividend growth, but halving its dividend to purchase Wyeth in 2009 really hurt its chances in a head-to-head against J&J based on dividend quality.

JNJ Dividends Paid (TTM) Chart

JNJ Dividends Paid (TTM) data by YCharts

This category, too, goes to Johnson & Johnson.

The better dividend stocks is...
Despite a dividend yield of 2.8% relative to Pfizer's 3.6% yield, I'd suggest that Johnson & Johnson is the better dividend stock of the two. Its growth appears to be much more sustainable and robust than Pfizer's and it's not comparably worse on a valuation basis than Pfizer when you take into account that its higher value metrics are likely in the context that it's growing faster than Pfizer in the first place.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of, and recommends Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.