Johnson & Johnson (NYSE: JNJ) is one of the bluest of blue chip stocks. It has been in operation for over 130 years and meets the Dividend King’s list. Investors have collected an increasing Johnson & Johnson dividend for over 50 years.
This dividend reliability might make it a great addition for income portfolios. So let’s take a look at the business, dividend history, and payout safety going forward.
Business Overview and Highlights
Johnson & Johnson is a $347 billion business based out of New Brunswick, New Jersey. Last year JNJ pulled in $76 billion in sales and that breaks down to $571,000 per employee (134,000 employees).
The company operates within the consumer sector and has three major segments: Pharmaceuticals, Medical Devices, and Consumer Health Products. Johnson & Johnson has massive reach and more than 250 subsidiaries.
Johnson & Johnson’s size and financial stability has helped it maintain a solid credit rating (AAA) from the S&P. This allows Johnson & Johnson to issue cheap debt to grow the business and pay dividends.
Johnson & Johnson Dividend History
The company paid investors $1.795 per share a decade ago. Over the last 10 years, the dividend has climbed to $3.32. That’s an 85% increase and you can see the annual changes below…
The compound annual growth is 6.3% over 10 years… but over the last year, the dividend climbed 5.4%. The slight decrease in dividend growth isn’t a great sign. Although, Johnson & Johnson still might be a worthwhile income stock. Let’s take a look at the dividend yield…
Current JNJ Dividend Yield vs. 10-Year Average
Johnson & Johnson’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is better for buyers when it’s sustainable.
JNJ’s dividend yield comes in at 2.78% and that’s below the 10-year average of 3.57%. The chart below shows the dividend yield over the last 10 years…
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes. This is called dividend yield theory.
Improved JNJ Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So a payout ratio of 60% would mean that for every $1 Johnson & Johnson earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety… but accountants manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here’s Johnson & Johnson payout ratio based on free cash flow over the last 10 years…
The ratio is fairly steady over the last 10 years and the trend is up. The last reported year shows a payout ratio of 50.3%. This gives wiggle room for Johnson & Johnson’s board of directors to raise the dividend.
Conclusion
The Johnson & Johnson Dividend is safe when looking at the dividend payout ratio trend. Although, JNJ’s dividend yield is below its 10-year average. There are better dividend investing opportunities available.
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