Published Fri, 04 Dec 2020 12:31:58 on Income Investors
Why JNJ Stock Deserves Income Investors Attention
In a market filled with soaring stay-at-home tech stocks and electric vehicle (EV) stocks, the century-old Johnson & Johnson (NYSE: JNJ) doesn’t look particularly exciting.
But here’s a bold statement: if you’re an income investor with a long-term investment horizon, it would be a mistake to not look at JNJ stock right now.
Here are three reasons.
Reason #1: Johnson & Johnson Stock Did Not Shoot Through the Roof
The media likes to talk about the top gainers in the market because profits get people excited. But remember this: past performance is no guarantee of future results. When looking at stocks that have already shot through the roof, it’s important to keep in mind that you can’t simply draw a trendline and expect the price to keep traveling in that direction forever. Corrections do happen, often at unexpected times.
JNJ stock is a very resilient stock. Its share price made a swift recovery from the COVID-19-induced sell-off early this year. However, I wouldn’t say Johnson & Johnson stock shot through the roof. At the time of this writing, it’s trading just one percent higher than at the beginning of 2020.
In fact, one could even say that JNJ stock has underperformed the market this year. This is because, year-to-date, the S&P 500 surged by a much more impressive 12.4%.
But this underperformance could represent an opportunity for income investors. As we know, there’s an inverse relationship between dividend yield and stock price. For instance, as the S&P 500 rose to new heights, the average yield of its components went down—and is just 1.6% at the time of this writing. (Source: “S&P 500 Dividend Yield,” multpl.com, last accessed December 3, 2020.)
Johnson & Johnson stock, on the other hand, still yields a decent 2.7%, partially because it did not shoot through the roof.
Reason #2: The Worst Is Likely Over
With established market positions in consumer health, pharmaceuticals, and medical devices, Johnson & Johnson is known for running a recession-proof business. After all, it has been around for well over a century.
However, that does not mean its financials weren’t impacted by the pandemic. In the second quarter of 2020, the company generated $18.3 billion in sales, which represented a 10.8% decrease from a year ago. Its adjusted earnings were $1.67 per share for the quarter, down 35.3% from a year ago. (Source; “Johnson & Johnson Reports 2020 Second-Quarter Results,” Johnson & Johnson, July 16, 2020.)
Fast-forward three months, though, and the numbers suggest that the worst should be over for Johnson & Johnson. In the third quarter, the company generated $21.1 billion in revenue, which actually represented a 1.7% increase year-over-year. It’s a similar story on the bottom line: adjusted earnings per share for the quarter grew 3.8% year-over-year to $2.20. (Source: “Johnson & Johnson Reports 2020 Third-Quarter Results,” Johnson & Johnson, October 13, 2020.)
No doubt, the global macroeconomic environment still faces uncertainty, but the company’s ability to get back on a growth path is definitely good news for JNJ stock investors.
Reason #3: Dividend-Growth Theme Remains Intact
Last but certainly not least, Johnson & Johnson stock is not just any dividend stock; it’s a reliable dividend growth stock. The company has paid a higher dividend every year for the past 58 years. (Source: “Dividend History,” Johnson & Johnson, last accessed December 3, 2020.)
That’s one of the longest track records of continuous dividend increases in the entire stock market.
And despite the impact from the COVID-19 pandemic, the dividend growth theme remains intact for JNJ stock. Even in the second quarter, when the company’s adjusted earnings per share declined by more than 35% year-over-year to $1.67, the amount still covered its quarterly dividend rate of $1.01 per share with ease.
And as things improved in the third quarter, Johnson & Johnson’s adjusted earnings per share covered the quarterly payout more than twice over.
Bottom line: JNJ may not seem like an exciting ticker compared to the high-flying stocks this year, but it could represent an opportunity for dividend growth investors.
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|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
|JOHNSON & JOHNSON||130.43||21.6||6.03||3.80||2.93|
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