Shares of Johnson & Johnson (NYSE:JNJ) have been struggling, lately. Over the past 52 weeks, JNJ stock has lost nearly 6% of its value. Year-to-date, the stock is down more than 5.5%.
This performance comes after the stock was on a tear for years, posting double-digit yearly stock appreciation rates and outpacing even the broader market during certain periods over the past few years.
But, as the share price levels out, investors are wondering about the healthcare giant’s future. Will the stall continue, or can Johnson & Johnson return to its market-beating ways?
Well, to help you answer that question, let’s take a look at the pros and cons of JNJ stock.
JNJ Stock Pros
Dividend Yield: That is how long JNJ has been paying — and raising — its dividend for 52 years. That history puts JNJ stock in the top 10 of the S&P 500’s dividend aristocrats paying and increasing their dividend for 50 years or more. That longevity and commitment to its dividend proves to investors that regardless of whom is running the organization, there are a few things unlikely to change, with the dividend policy at the top of the list.
Product Mix: Johnson & Johnson essentially has two sides to its business. It sells low-price, brand-name products like band aids, soaps and other health and beauty products. These items sell themselves, they pay the companies bills and provide great stability. The other side is the higher-margin medical devices and pharmaceutical drugs. This side of the business provides the opportunity for revenue and earnings growth.
Safe Stock: The combination of age, dividend longevity, consumer facing business and overall product mix make Johnson & Johnson your poster child for safe, reliable, sleep soundly stocks. The company has been in business for more than 130 years and holds a $275 billion market cap — this business can make it through tough economic times. To me JNJ is one of the safest stocks — if not the safest — to own over the long term.
JNJ Stock Cons
Massive Size: As it stands now, Johnson & Johnson has a market capitalization of $275 billion — one of the 10 largest companies in the world. A company that size needs to really show great growth in order to deliver market-beating returns for its investors. But a big company also needs bigger revenues to make a meaningful impact on the bottom line. As JNJ stock as proven over the past year, the market starts to lose interest if operations begin to stall.
Declining Sales and Earnings: For the current quarter JNJ is expected to post revenue of $17.74 billion, down from the $19.5 billion it posted during the same quarter last year. For the full 2015 fiscal year, revenue of $70.47 billion is expected and in 2016 analysts estimate revenue of $72.9 billion — both of which are below the $74.33 billion JNJ reported for 2014. On the earnings front, the picture is the same: Estimates of $1.69 in Q2 and $6.14 for the full year are below actual last year’s $1.78 in Q2 and $6.39 for fiscal 2014.
Dividend Growth: This year marks the 53 straight years JNJ has increased its dividend, but its growth is showing signs of slowing. A few months back JNJ announced its dividend would grow by 7.1% in 2015. That follows 6.1% growth in 2014 and 8.2% in 2012. We have to go back to 2010 to find the last time the JNJ dividend was increased by double digits. Its three-year average growth is now just 7.13%, while its five year average is only 6.79%, both down from the ten-year average of 8.5%.
Bottom Line for JNJ Stock
At the end of the day, prospective JNJ stock investors have to ask themselves whether they are interested in a long-term or short-term holding.
Short-term shareholders should pass on JNJ stock as it doesn’t appear to be a stock that’s about to make a massive move higher. However, longer-term investors will be able to comfortably rely on nice 3% dividend yield and know that holding JNJ for 10 or 20 years will produce solid, stable returns.
As of this writing, Matt Thalman was long Johnson & Johnson. Follow him on Twitter at @mthalman5513.
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