Johnson & Johnson (NYSE: JNJ) is an elite dividend inventory. The healthcare large has elevated its dividend fee for 62 years in a row. That qualifies it as a Dividend King, an organization that has elevated its dividend fee yearly for at the least 50 years.
The corporate additionally has a higher-yielding payout. At round 3.4%, it is nearly triple the S&P 500‘s (SNPINDEX: ^GSPC) dividend yield, which is close to a greater than 20-year low at 1.2%.
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The enduring healthcare firm backs its high-yielding payout with a really wholesome monetary profile. Due to that, it is a perfect possibility for traders searching for a super-safe revenue stream.
As wholesome because it will get
Johnson & Johnson is just like the Fort Knox of dividend shares. The healthcare firm has an AAA bond rating. That is tied for the most effective on the earth and is larger than the U.S. authorities. This ranking signifies that the corporate has a powerful capability to meet its monetary obligations even throughout the deepest financial downturns.
The corporate, which had a greater than $355 billion market cap, ended final 12 months with solely $12 billion in internet debt ($25 billion in money and $37 billion in whole debt). Its whole debt rose final 12 months after it made a number of vital acquisitions, the most important being its $13.1 billion all-cash deal for Shockwave Medical. It has deployed, introduced, or dedicated $32 billion into inorganic progress alternatives over the previous 12 months, together with its not too long ago introduced $14.6 billion all-cash deal for Intra-Mobile Therapies that ought to shut early within the second quarter.
The healthcare behemoth can simply afford its present debt degree. It generated roughly $20 billion in free money circulation final 12 months. That was loads of cash to cowl its dividend outlay ($11.8 billion). Johnson & Johnson produced considerable free money circulation even after investing an eye-popping $17.2 billion in research and development (R&D) to find, develop, and take a look at new modern medicines and medical applied sciences.
Wholesome progress forward
Johnson & Johnson’s heavy investments in R&D and acquisitions put it in a powerful place to develop its income, earnings, and free money circulation sooner or later. The corporate expects its operational gross sales to rise by 2.5% to three.5% this 12 months to greater than $90 billion. In the meantime, it expects to ship adjusted earnings per share progress of 5.2% to 7.2%. That excludes the affect of its pending Intra-Mobile acquisition.
The corporate’s acquisitions will likely be a near-term headwind to its earnings progress. For instance, Shockwave will shave $0.17 per share off its adjusted earnings this 12 months as a result of affect of financing prices. In the meantime, Inter-Mobile might lop one other $0.30 to $0.35 per share off its adjusted earnings this 12 months, relying on when the acquisition closes and its borrowing charges.
Nonetheless, these transactions ought to pay dividends sooner or later. For instance, Shockwave will prolong its place within the high-growth cardiovascular intervention phase, boosting its MedTech enterprise’ gross sales progress and margins. In the meantime, Intra-Mobile has already launched a commercially profitable remedy and has a sturdy pipeline.
The corporate’s heavy investments in R&D additionally place it for future progress. It expects to attain a number of milestones in its modern medication and MedTech division this 12 months that may drive long-term worth creation for shareholders.
As the corporate appears forward, it is ready to ship 5% to 7% annual operational gross sales progress by means of 2030 and past. That ought to drive even larger adjusted earnings per share and free money circulation progress charges because it expands its margins. That progress positions Johnson & Johnson to proceed growing its dividend at a wholesome fee for the foreseeable future.
A really match dividend inventory
Johnson & Johnson is a particularly secure dividend inventory. The healthcare large has an elite stability sheet and generates boatloads of free money circulation. That offers it the cash to pay a rising dividend and make investments closely to proceed rising its healthcare companies. With extra progress forward, its dividend ought to proceed to rise at a wholesome fee, making it a core holding for any investor searching for a secure and safe revenue stream.
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Matt DiLallo has positions in Johnson & Johnson. The Motley Idiot recommends Johnson & Johnson. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the creator and don’t essentially mirror these of Nasdaq, Inc.
