What’s a clear indicator of a well-run business? It’s when customers across the globe can easily recognize your company’s brands.
It’s safe to state that practically everyone in the world knows at least one or two products in Johnson & Johnson’s (JNJ) portfolio.
Since the pandemic started and until now, when things remain uncertain and economic headwinds continue to befall the market, JNJ has proven itself to be virtually recession-resistant.
In fact, based on its third-quarter earnings report, JNJ is one of the handful of companies receiving short-term boosts. Amid the issues over inflation and supply chains, this healthcare company reported $23.8 billion in revenue, rising by 1.9%, and earnings per share of $1.68, up by 22.6%.
In the past 10 years, JNJ has boosted its revenue annually except in 2015.
The biopharmaceutical giant is also diligent in making sure its investors are happy. It has shelled out $2 billion in 2022 alone on share buybacks, with an additional $3 billion scheduled.
It has also paid out $3 billion worth of dividends to investors, with the market-proclaimed Dividend King raising its payout for 60 consecutive years.
As in the previous quarters, JNJ’s pharmaceutical business division delivered the most substantial sales gains, while its consumer health division struggled to overcome foreign currency woes.
Minor tweaks to JNJ’s guidance offered some color to the earnings report. The company narrowed its sales growth estimates and lowered its range for full-year revenue to somewhere between $93 billion and $93.5 billion, primarily due to the strong dollar. Nevertheless, the company’s adjusted earnings guidance remains the same, with anticipated operational gains.
Meanwhile, its plan to spin off its consumer health segment in 2023 into a new company called Kenvue has shareholders hopeful for an increase in the value of JNJ stock soon.
The plan to spin off this segment has been in the works for quite some time and is anticipated to enable JNJ to become a more profitable company in the long run.
While brands like Listerine, Band-Aid, and Benadryl have high name recall, the company’s consumer health segment remains a slow growing and has become a burden. Actually, these well-known brands only account for roughly 15.6% of the company’s $47.4 billion recorded in the first 6 months of 2022.
The true catalyst in JNJ’s growth is and will continue to be its pharmaceutical division. This segment includes the mega-blockbuster immunology treatment Stelara and the oncology drug Darzalex, both of which rake in at least $5 billion in sales every year.
JNJ also has 11 more drugs and its COVID-19 vaccine in its portfolio, which are all on pace to add a minimum of $1 billion in sales for this year.
Looking at its current portfolio and pipeline, JNJ is projected to record a 4.1% annual earnings growth in the next 5 years. On top of these, JNJ has 99 drug indications queued for clinical development across various therapy areas like oncology and immunology. These should offer the company more than enough firepower to bolster its sales and earnings higher gradually.
Coupling this earnings growth with JNJ’s dividend payout ratio at a reasonably 44%, then I can confidently say that the company’s 60-year dividend growth streak is on track. It’s also safe to project 5% to 6% annual dividend growth in the short term.
One of the critical principles in investing is to ensure that you are diversifying your portfolio not only in terms of the companies but also the sectors you put your money into.
This measure can help protect your portfolio and its income from headwinds in a particular industry at any given time.
Throughout the years, healthcare has proven to be a must-own segment. After all, everyone will require access to the healthcare system, whether for a routine checkup, prescription, or surgical procedure.
Moreover, the part of the global population needing more focused and frequent medical care—people aged 65 and older—is projected to nearly triple from 2015 to 2050 to record 1.6 billion individuals.
Considering these factors and the stability offered by JNJ, it’s easy to see how this company can become a lucrative long-term investment for those looking to diversify their portfolio. I strongly suggest buying the dip.
