When investors are looking to fill out their retirement portfolios, they would be wise to give a long, hard look at Johnson & Johnson (NYSE:JNJ) stock. Though shares of the company are up almost 40% in the past year, there are three big reasons the company is worth owning today.
1. Strong brands galore
Many people might not realize it, but along with many of the products you know and love from above, Johnson & Johnson also makes medical equipment and develops prescription drugs. From time to time, these two latter segments can yield major profits.
For instance, in 2012, Remicade, a product that treats Crohn's disease and rheumatoid arthritis, achieved sales of $6.1 billion for Johnson & Johnson. That means almost 10% of the company's revenues came from just one drug!
But the sales of both prescription drugs and medical devices can be volatile. The arduous drug approval process, certain medicines coming off patent protection, and continued innovation in the medical equipment industry all combine to make these segments hit-or-miss.
Therefore, although the consumer products that we are more familiar with only accounted for 21% of Johnson & Johnson's revenue in 2012, their presence is incredibly important. They provide stability for the more lucrative -- but uncertain -- segments of the company.
Taken as a whole, this allows investors to gain exposure to both the lucrative pharmaceutical and surgical industries just by owning Johnson & Johnson stock.
2. A very healthy balance sheet and dividend
When dealing with big conglomerates like Johnson & Johnson, it can sometimes be easy to take on debt loads or assets that aren't shareholder friendly. For instance, during the Great Recession, other conglomerates like General Electric had finance divisions that eliminated all of the cash flows generated its other divisions, causing the stock to nose-dive.
But Johnson & Johnson has avoided that distinction. The company currently has $15.9 billion in debt -- no small number -- but holds more than $21 billion in cash. Furthermore, in 2012, Johnson & Johnson generated $12.5 billion in free cash flow -- more than enough to cover the $6.6 billion in dividends the company paid out.
Currently, Johnson & Johnson's stock yields a healthy 3% dividend, much larger than the market as a whole.
3. A field ripe for continued growth
Much has been made about the skyrocketing health care costs in America. But as many fellow Fools have already pointed out, our country's obesity, heart disease, mental health, and diabetes problems aren't going anywhere soon.
Of course, there are more lucrative options out there. You could invest in Arena Pharmaceuticals (NASDAQ:ARNA) or VIVUS (NASDAQ:VVUS), which have developed obesity medications. Both Belviq and Qsymia, each company's respective medicine, have been approved by the FDA and hold great potential for investors. However, sales of Qsymia haven't taken off in part because of insurers being slow to pick up coverage, and Belviq isn't on the market yet because DEA scheduling for the drug took several months to complete.
A much safer route would be to invest in Johnson & Johnson stock. Although the company might not have a breakthrough medicine for obesity right now, it has enough cash to finance major research and development in the future. And the company also has a global reach, which becomes evermore important as the ills of Western living start to spread across the globe.
A Foolish approach
I've been investing in Johnson & Johnson stock since August 2011. Since then, the stock has returned 45% -- beating the market by 11 percentage points. But I still think any investor looking for exposure to health care would be wise to consider buying shares of Johnson & Johnson.
Editor's note: A previous version of this article did not clearly state that Arena's Belviq has not yet reached the market. The Fool regrets the error.
Fool contributor Brian Stoffel owns shares of Johnson & Johnson. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of General Electric Company 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.