Johnson & Johnson (NYSE:JNJ) has remained a long-time favorite among conservative investors. Its production of necessary, recession-proof products as well as its consistent dividend have provided comfortable, consistent profits for decades. A large increase in 2017 has taken the healthcare giant to an average valuation. However, given the high earnings growth, JNJ stock remains well-positioned to continue its march higher.
JNJ Stock Ha Increased Dividends Annually for 55 years
One is hard-pressed to find many negatives about Johnson & Johnson stock. Of all the stocks traded today, few have enjoyed so much cash flow, so consistently, for so long as Johnson & Johnson. This equity holds its place among so-called “dividend aristocrats.”
These are S&P 500 index stocks that have a 25+-year record of annual dividend increases. JNJ’s has increased its dividend every year for 55 years. Right now, the company pays a dividend yield of about 2.4%. The dividend currently stands at $3.36 per share, which was the stock’s approximate split-adjusted price in 1986.
Most investors know JNJ best for its consumer products that have been found in most of America’s medicine cabinets for more than 100 years. However, unlike Procter & Gamble Co (NYSE:PG), consumer products make up a small segment of the company’s business. Like Merck & Co., Inc. (NYSE:MRK) or Eli Lilly and Co (NYSE:LLY), most of the growth comes from drug sales.
It is this growth that has propelled the stock to new all-time highs. The stock has risen by about 27% over the last 12 months. This level of growth might discourage more risk-averse investors. I believe Johnson & Johnson stock has more room to grow in the near term.
Currently, the JNJ stock price stands at around $140 per share. This places the price-to-earnings (PE) ratio at around 24.3. This is near the S&P 500’s current average PE of 23.6. However, Johnson & Johnson stock maintained double-digit earnings growth at the beginning of the decade.
This growth paused in 2015 before returning to the single digits. With earnings of $7.28 per share expected for fiscal 2017, Johnson & Johnson stock is expected to maintain a single-digit earnings growth rate for the next three years.
JNJ Stock Benefits from the Baby Boomers
Also, demographics create a favorable environment for JNJ stock. At its core, Johnson & Johnson’s main business remains healthcare. The baby boom population currently stands at about 74.9 million people. This cohort continues to age into Medicare at a record pace.
Forbes estimates 10,000 people per day age into Medicare. These baby boomers will use the same consumer healthcare products with which they’ve known all of their lives.
Moreover, many of the company’s medical devices and drugs cater to baby boomers. JNJ produces medical devices in the areas of heart surgery and diabetes care, among others. They also manufacture drugs for the treatment of rheumatoid arthritis, Crohn’s disease, and several cancers.
Coverage by Medicare will make the devices and drugs affordable to consumers and profitable for Johnson & Johnson stock investors.
Final thoughts on Johnson & Johnson Stock
Despite strong growth in 2017 and a conservative outlook, conditions still position Johnson & Johnson stock to move higher. While it’s true that the stock rose by 27% over the last 12 months, many growth catalysts still exist in this equity. Population growth and especially growth with the large numbers of baby boomers aging into Medicare should benefit Johnson & Johnson.
At 2.4%, the current dividend yield remains lower than some high-flyers. However, that dividend has a track record of dividend increases that spans over 55 years.
Further, growth should push the PE ratio lower as staying in the stock allows investors to receive higher dividends. If one wants a steady stream of cash flow and a strong, consistent dividend, JNJ stock remains a great choice for the conservative investor.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.
