In Johnson & Johnson's (JNJ 0.06%) latest earnings report, they announced yet another dividend increase. This, of course, came as little surprise, as Johnson & Johnson is a Dividend Aristocrat -- an elite group of S&P 500 companies that have increased their dividends without fail annually for the past 25 years. The list of Dividend Aristocrats includes such household names as Coca-Cola, Procter & Gamble, and 3M. Given its status among these top stocks, J&J would certainly be on my watch list if I didn't own it already.
Strong in the face of currency headwinds
First quarter numbers for J&J were unsurprisingly solid; earnings per share came in at $1.56 on sales of $17.4 billion, beating estimates of $1.53 and $17.3 billion for the quarter. However, the sales figure fell short of last year's first-quarter result by more than 4%. While domestic sales were up by almost 6%, international sales declined by an eyebrow-raising 12.4%. The main culprit was currency fluctuation, as the international sales figure encompassed a 0.8% increase in sales and a 13.2% negative currency impact.
Although Johnson & Johnson is best known for numerous iconic consumer brands, including Band-Aid, Listerine, Tylenol, Nicorette, and Motrin, the company actually consists of three distinct business units: pharmaceuticals, medical devices and diagnostics, and consumer products.
Pharmaceutical sales reached $7.73 billion in the first quarter, up 3% year over year. Domestic sales increased by nearly 17%, while international sales declined by 10.7% due to those currency issues.
The medical devices unit's revenue was $6.26 billion, down 11.4% year over year on a 6.1% drop in domestic sales and a 15.6% sales plunge internationally. While these numbers might seem alarming, much of the variance can be attributed to foreign currency fluctuations here as well.
Consumer products sales dropped by 4.7% in the quarter, to $3.39 billion. Domestic sales figures increased by 3.8% and international sales declined by 9.7%. The international sales figure encompasses a 3.1% increase in sales and a 12.8% negative currency impact.
We all know currencies move in both directions. So while the latest quarter's numbers are ugly, the results could easily reverse themselves in short order, particularly if currencies revert back to last year's levels. I won't try to predict where currencies are heading, but a reversal could provide a nice pop in earnings this time next year. So, as long-term investors, it doesn't make sense to worry too much about these fluctuations that have little to do with the underlying business' strength.
The most important of all these numbers
While all of the aforementioned numbers help paint the complete picture of the company's current state, one number stands out among the rest: 53. The 7.1% increase in the quarterly dividend, from $0.70 per share to $0.75 per share, marks the 53rd consecutive year in which Johnson & Johnson has increased its payout. This is an extraordinary accomplishment that very few companies can match.
Only 10 of the 54 Dividend Aristocrats have raised their raised their payout for at least 50 consecutive years. That short list includes the aforementioned Coca-Cola, Procter & Gamble, and 3M. In total, only 16 companies have raised their dividend for at least 50 years. The six others, which aren't members of the Dividend Aristocracy since they are not members of the S&P 500, are predominantly utility companies. This is truly an elite group.
Despite this accomplishment, in recent weeks, shares of Johnson & Johnson have declined by almost 6%. However, this dip, combined with the latest increase to its dividend, has shares of Johnson & Johnson now yielding more than 3%. This latest dividend increase is consistent with recent years' boosts, on a percentage basis.
|
Year |
Increase |
|---|---|
|
2015 |
7.14% |
|
2014 |
6.06% |
|
2013 |
8.20% |
|
2012 |
7.02% |
|
2011 |
5.56% |
|
2010 |
10.20% |
|
2009 |
6.52% |
|
2008 |
10.84% |
|
2007 |
10.67% |
|
2006 |
13.64% |
|
2005 |
15.79% |
|
3-yr avg. |
7.13% |
|
5-yr avg. |
6.79% |
|
10-yr avg. |
8.56% |
As the chart shows, annual dividend increase in the neighborhood of 7% has been the norm in since 2011. However, that is a departure from prior years' increases: Five of the six preceding years had double-digit dividend increases.
Johnson & Johnson is a solid performer and should be for years to come. The size of the dividend increases might have fallen in recent years, but the opportunity to invest in a company that has increased its dividend for 53 consecutive years and to get a 3% yield with 7% annual payout boosts still makes Johnson & Johnson a solid core company for your portfolio.
JNJ is certainly no "dividend trap." This company has been around for 129 years. With an enviable array of brand name consumer products sold around the world which people will be using for years to come, a solid R&D effort which generates new and high quality pharmaceutical products and medical devices on a regular basis, and the ability to easily purchase smaller competitors to build out its product array, this company can be a solid foundation for your portfolio.
It's worth noting, however, the stock seems currently fairly valued, so while you might be investing in a great company, you wouldn't be getting it at a particularly great price. I'll let the Oracle of Omaha himself weigh in on that predicament:
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
-- Warren Buffett
Happy investing.
