Many people might say that all press is good press, but it’s probably safe to say that Johnson & Johnson (JNJ) doesn’t agree.
A multipart Huffington Post piece ripped the pharma company for covering up negative side effects of one of its drugs and accused the company of putting shareholders ahead of patients.
If that’s the case, though, Johnson & Johnson hasn’t exactly been doing the best job.
Looking strictly at JNJ stock performance, the picture remains ugly. So far this year, JNJ stock has dipped 11% — nearly double the broader market’s drop — while shares have lost 13.5% over the last 52 weeks.
The Bright Side of JNJ Stock
Despite these struggles, there are still several pros to owning JNJ stock.
As I’ve mentioned recently, rocky waters — whether for the broader market or an individual company — often create waves of opportunity for investors who are thinking long-term.
For instance, while there are concerns around potential federal repercussions against Johnson & Johnson, the tough reality is that most big pharma companies have faced a similar situation. And while there are concerns around one particular drug, JNJ is a widely diversified healthcare giant — and one with an impressive track record.
JNJ stock has been public for seven decades, while Johnson & Johnson has been around for almost 130 years. A quick sampling of its stability: It boasts profit margins north of 22%, operating margins of more than 27%, a 22% return on equity and a whopping $12.26 cash per share.
Investors might be concerned about a lack of growth, but a company of this size and market dominance is naturally going to have trouble expanding earnings rapidly. This year, an earnings decline is actually on tap … but it’s supposed to level out to 5% annualized growth longer-term.
While an earnings drop is never ideal, the recent decline shows it’s already been factored in.
And for the cherry on top, JNJ stock is a great dividend pick with a yield north of 3%, 53 consecutive years of dividend increases and plenty of wiggle room thanks to a payout ratio of just 50%.
Since Johnson & Johnson split its stock in 2001, the quarterly payout has gone from 18 cents to 75 cents — a whopping 320% expansion.
That kind of upwards momentum could mean one sweet yield on cost down the road.
Just consider this for proof: If you had bought JNJ stock at its highest point in 2001, you would have shelled out around $60 per share. At the time, the 18-cent quarterly payout translated to a yield of around 1.2%.
If you had the patience to hold on during the decade-plus of increases, you’d be sitting on a 75-cent quarterly payout and a yield on cost of 5%.
Bottom Line
In today’s low-rate environment, where the Fed continues to kick the can down the road, a 5% yield is perhaps the most mouth-watering thing on the menu.
But the current 3% yield isn’t bad either — and could be enough to get JNJ stock some momentum as investors turn to dividend picks for steady income.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
