The new year is a good time to review whether holdings still fit a portfolio. Blue chip Johnson & Johnson (NYSE: JNJ) was one of only six Dow Jones Industrial Average stocks with a negative return over 2010, and it needs a checkup.

The health-care and consumer products giant is the fifth- most-rated stock in Motley Fool CAPS, carries a five-star (out of five) CAPS rating, and has increased its dividend for 48 straight years. On the negative side of the ledger, Johnson & Johnson has struggled with several product recalls.

Like many Fools, I hold the shares for the growing dividend and haven't been disappointed. But, will the string continue? Are there better picks to play that role? Here's a business snapshot to get started.

Company Name 

Johnson & Johnson

One-Sentence Statement of Operations Johnson & Johnson produces pharmaceuticals, medical devices, and consumer products.
Recent Price $62.55
Market Cap $171 billion
P/E (FY 2011) 12.5
Estimated Annual Earnings Growth (next 5 years) 5.9%
Dividend Yield 3.5%
Payout Ratio 42%

Source: Yahoo! Finance.

The good yield along with expected earnings growth and a reasonable payout ratio keep a smiley face on the dividend growth story. Let's check up on some of the company's peers to see if any of them are telling a better story.


P/E Ratio

Estimated 5-Year Earnings Growth

Dividend Yield

Payout Ratio

CAPS Rating

Johnson & Johnson 12.5 5.9% 3.5% 42% *****
Abbott Laboratories (NYSE: ABT) 10.1 9.1% 3.8% 55% *****
Becton, Dickinson (NYSE: BDX) 15.3 9.9% 2.0% 27% *****
Bristol-Myers Squibb (NYSE: BMY) 11.4 2.3% 5.1% 70% ****
Medtronic (NYSE: MDT) 10.3 8.8% 2.4% 30% *****

Sources: Yahoo! Finance and The Motley Fool.

Bristol-Myers Squibb's high dividend yield looks great, but low growth projections and a high payout ratio make the prospects for dividend growth pretty dim.

Fellow pharmaceutical Abbott Labs trades at a discount to Johnson & Johnson, has a higher dividend yield and has higher earnings growth estimates. The payout ratio is a little high, but certainly not unreasonable.

Medical instruments maker Becton, Dickinson trades at a premium to this group, but also has the highest growth predictions. Good earnings growth prospects and a low payout ratio make dividend hikes a good bet.

Based on this summary, medical devices manufacturer Medtronic is the star of the group. It trades with a value multiple and has good estimated growth and a low payout ratio. Although the dividend yield is lower than Johnson & Johnson's, the stronger earnings and dividend growth prospects make it a better value.

In a close call, it's "sweep it" for Johnson & Johnson. Even though the company is a good candidate for dividend growth investors, there are more attractive prospects for that role. Medtronic is the leading contender to replace the company in my portfolio, but Becton, Dickinson and Abbott Labs are worth a closer look during my Fool disclosure policy blackout period.

You can follow any of the stocks mentioned using our free watchlist service, My Watchlist.

Fool contributor Russ Krull owns shares in Johnson & Johnson, but no other company mentioned. Becton, Dickinson and Johnson & Johnson are Motley Fool Inside Value recommendations. Johnson & Johnson is a Motley Fool Income Investor selection. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. The Fool owns shares of Johnson & Johnson and Medtronic. Motley Fool Alpha owns shares of Abbott Laboratories and 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.