JNJ Stock: Could Johnson & Johnson Spike Its Dividends?

JNJ StockJNJ Stock a Top Dividend Name for 2016 and Beyond

Johnson & Johnson (NYSE:JNJ) is an old stalwart, known for being one of the most reliable stocks for dividend investors. It is among an elite class of companies that have increased their dividend payouts every year for at least 25 years. They’re known as the “Dividend Aristocrats.” In the case of J&J, it has increased its dividend for 53 straight years. J&J earnings for the first quarter were reported before the opening bell on Tuesday and one thing on investors’ minds is if JNJ stock will keep dishing out the dividends. Let’s find out.

Johnson & Johnson had an impressive first quarter, beating earnings expectations even with foreign exchange rates negatively affecting revenue growth. The quarter was so good for the healthcare giant that it raised its guidance for the rest of the year.

J&J now expects earnings per share for the year of $6.53 to $6.68, which is up from a previous guidance of $6.43 to $6.58 per share. The company is also now expecting revenue to come in around $71.2 billion to $71.9 billion for the year, compared to a previous guidance of $70.8 billion to $71.5 billion.

Johnson & Johnson’s stock price moved higher on the news, up 2.1% to $113.25 on Tuesday morning. That is a record-high for the company.

The good news is welcoming for investors, as it seems the company is back on track. From 2009 up until this year, JNJ stock had underperformed the healthcare sector every year. (Source: “Johnson & Johnson hikes 2016 estimates as U.S. dollar weakens,” The Globe and Mail, April 19, 2016.) The company struggled with patent expirations on major drugs and suffered from a series of product recalls in its consumer division.

But the company has rebounded recently. J&J recently brought to market a number of treatments for cancer, diabetes, and other diseases. Pharmaceutical sales rose an impressive 5.9% to $8.2 billion in the first quarter. (Source: Ibid.)

“Our pharmaceuticals business continues to deliver impressive levels of growth, we have steady improvement in our consumer business, and we are seeing momentum in our medical-devices businesses, all of which are fuelling our optimism for the full year ahead,” J&J CEO Alex Gorsky said. (Source: “Johnson & Johnson beats views, boosts guidance,” MarketWatch, April 19, 2016.)

That bodes well for J&J’s dividend. Johnson & Johnson didn’t make a dividend announcement during the earnings call, but investors should rest assured that one could be coming soon. J&J typically increases its dividend in April, so investors should expect an announcement any day now.

And investors should expect a nice increase, too. Over the past decade, J&J has increased dividends by about 17% every year. (Source: “Annual Dividends Issued,” Johnson & Johnson, last accessed April 19, 2016.) JNJ stock currently hands out $0.75 a share per quarter. If history repeats itself, then a 17% increase in dividends will mean that JNJ shareholders will receive about $0.88 a share per quarter.

J&J’s dividend policy is also easily sustainable. The company’s dividend payout is about 54% of profits, which leaves plenty of room for future increases. Investors won’t have to worry about flat growth in their dividend paychecks anytime soon.

On top of dividends, here are another couple of reasons to get interested in JNJ stock:

Johnson and Johnson’s management is topnotch. Since 1886, the company has only had nine CEOs. Current CEO Alex Gorsky has been with the company for 24 of the past 28 years. A management team that has low turnover is generally interested in creating value.

J&J also recently approved a $10.0-billion share repurchase program. That accounts for about 3.8% of total shares outstanding and should provide support for the stock price, as well as creating more value for dividend investors. (Source: “Johnson & Johnson sets $10 billion stock buyback program,” MarketWatch, October 13, 2015.)

The Bottom Line on JNJ Stock

J&J stock currently sports a 2.72% dividend yield, but that figure could approach three percent in the next couple of weeks when the healthcare giant is expected to make a dividend increase announcement. With that type of yield and the company’s consistency in raising dividends year after year, investors may find JNJ stock a worthy addition to their portfolio.