As this aging bull market approaches its sixth year, protection against a correction is more important than ever. And you can find just that with Johnson & Johnson (JNJ), which is a reasonably valued play for just about everything — income, growth and defense.
Risk-averse investors who want to stay in the game and go for growth should look to blue-chip companies with strong balance sheets that make brand-name products that consumers will continue to buy for generations. JNJ stock offers exactly that, as the global healthcare giant makes a wide variety of products that you’ll find in almost every consumer, physician and hospital supply cabinet.
With a market cap of $294.8 billion, a healthy dividend of 2.8% and a diversified portfolio of products that includes pharmaceuticals and medical supplies and devices, JNJ should continue to generate a great combination of income and appreciation — especially as economic recovery and Obamacare kick into higher gear in 2015.
Johnson & Johnson’s consumer division produces familiar brands, including Tylenol, Neutrogena, Band-Aid and Listerine. JNJ’s medical devices and diagnostics division offers products used by healthcare providers in surgery, orthopedics, vision care, infection prevention and diagnostics.
Recent medical device lawsuits, long settled by the company for relatively minor fines, still weigh on the stock. But as the saying on Wall Street goes: Follow the trends, not the headlines. The medical device industry enjoys tailwinds that should accelerate over the next few years.
According to a report released last week by the Ace Business and Market Research Group, composites in the global orthopedic industry are expected to grow at a compound average annual growth rate of 8.1%, to reach a value of $596 million by 2020.
JNJ never rests on its laurels; the company annually spends more than $3 billion on research & development (R&D) to develop new products. This steady investment in innovation positions the company to benefit from the increasing rates of chronic disease among aging populations around the globe.
Johnson & Johnson also is adept at maneuvering through the bureaucratic maze to get its products to market. The U.S. Food and Drug Administration recently approved the company’s Imbruvica treatment for mantle cell lymphoma, a drug that management estimates could eventually generate annual sales of roughly $9 billion. The FDA also recently approved Johnson & Johnson’s Olysio, a new drug treatment to cure chronic hepatitis C, the most common form of the liver-killing virus.
JNJ stock should outperform the broad market in 2015 as these treatments hit the market.
JNJ Stock: The Best of Both Worlds
Johnson & Johnson is well-capitalized, sports a strong balance sheet and farsighted management, giving it the staying power and wherewithal to increase its dividend for 52 straight years. This track record firmly puts JNJ stock on the honored list of Dividend Aristocrats.
To earn the title of Dividend Aristocrat, a company must typically have raised dividends for at least 25 years. Specifically, the company must have a managed dividend policy that boosted its dividend every year for those 25 years.
These dividend juggernauts make up the “S&P 500 High Yield Dividend Aristocrat Index,” an official index of the 50 highest-dividend-yielding stocks in the S&P Composite 1500. This Aristocrat Index is maintained by Standard & Poor’s, which every December updates the list of companies that pass muster.
JNJ makes vital products that consumers will always need, regardless of the market’s gyrations. And while JNJ stock yields a good-but-not-great 2.8%, the payout ratio is a modest 45%, allowing ample room for dividend increases down the road. All this suggests that its status as a Dividend Aristocrat is unlikely to be challenged.
What’s more, JNJ stock is a bargain right now, boasting a 12-month trailing price-to-earnings ratio of only about 17, compared to the average P/E of 27 for its drug industry peers.
Bottom Line
Johnson & Johnson is correction-resistant and should give investors both growth and peace of mind in 2015.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
