If long-term, sustainable wealth creation is your goal, look no further than Johnson & Johnson (NYSE:JNJ) as a candidate for your portfolio.
If you've grown weary of hanging on to every piece of market-rattling news, and instead would prefer a stock that allows you to sleep well at night, read on to find out why you should consider Johnson & Johnson as a key portfolio holding.
Diverse operating segments make for remarkable consistency
Johnson & Johnson performs strongly year in and year out, regardless of the overall economy. That's because the company operates in a number of different areas within the health care industry, which makes for a rock-solid business model. Even when the economy takes a nosedive, J&J remains steady, thanks to the fact that unlike its peers, J&J isn't a pure pharmaceutical company. In fact, J&J controls more than 275 operating companies in all.
Johnson & Johnson is organized into three main operating segments: medical devices and diagnostics, pharmaceutical, and consumer. The company has effectively diversified into each, indicated by the fact that no one segment accounts for more than 40% of total revenue.
The medical devices and diagnostics segment allows J&J access into what is a high-growth industry. This segment provided the strongest growth for the company in 2012, increasing sales by 6.4% year over year. With $27.4 billion in revenue last year, J&J's medical devices and diagnostics segment is the largest medical technology business in the world.
The consumer segment contains several world-class brands that can likely be found in nearly every household in the United States. These include Band-Aids, Listerine, Neutrogena, Tylenol, and of course, the company's namesake baby care products. In all, Johnson & Johnson maintains the world's sixth largest consumer health care business. And, thanks to the stability of consumer health care products, this segment reduces volatility in the company's overall results, which is even more important when the economy goes south.
That's especially critical for any health care conglomerate that operates a large pharmaceutical business. Pharmaceutical results can be notoriously unsteady, as companies spend huge amounts of resources on research and development for drugs that may never make it to market. Competitors including Eli Lilly (NYSE:LLY) and Bristol-Myers Squibb (NYSE:BMY) have much more volatility of their underlying results because they are more dependent on pharmaceuticals. For example, Bristol-Myers Squibb reported full-year 2012 net sales that were 17% lower than the previous year. Likewise, Eli Lilly reported that full-year 2012 revenues declined 7% year over year. By contrast, J&J's pharmaceutical segment performed strongly last year, increasing revenue by 4%.
Consider that J&J generates approximately 70% of its revenue from products that hold the number one or number two global market positions. Furthermore, J&J has delivered 29 consecutive years of adjusted earnings increases. In addition, J&J's diversified portfolio of products has left it in tremendous financial condition. J&J is one of only four non-financial, U.S.-based companies to hold the coveted triple-A credit rating from Standard & Poor's. Add it all up, and what you're left with is a hugely profitable, remarkably consistent company that can thrive no matter how the broader economy performs.
Shareholder rewards that are second-to-none
There's simply no matching J&J's track record of returning cash to shareholders. Sure, many other health care companies pay hefty dividend yields. But few have the amazing track record of providing dividend increases that J&J does. Earlier this year, J&J increased its dividend for the 50th year in a row. And, it's worth noting that these haven't been token dividend increases just to keep the streak going. The company raised its payout earlier this year by 8%.
Eli Lilly sports a solid 3.8% dividend yield, but the company hasn't given its investors a dividend increase since 2009. And, management has yet to give a clear indication as to when dividend growth will resume. Bristol-Myers Squibb, meanwhile, yields 3%, but its own dividend growth over the past few years leaves a lot to be desired. Bristol-Myers Squibb's last four dividend increases were only in the amount of one penny per share.
To summarize, Johnson & Johnson holds a fortress balance sheet, a diversified portfolio of highly profitable businesses, and rewards its shareholders year after year. For the best mix of growth and consistency within the health care space, consider Johnson & Johnson.
Bob Ciura has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of 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.