My Top Company for Income and Capital Gains

Why Every Investor Should Consider a Stock Like This One at This TimeOnce again, Johnson & Johnson (JNJ) has come through for investors. The company just reported a very solid first-quarter earnings report.

Continued strength in the company’s pharmaceutical business is the big reason for the growth. Total global sales grew 3.5% to $18.1 billion, with domestic sales growing 2.2% and international sales growing 4.5%.

Notable in the company’s latest numbers was strength in European sales, which is an emerging trend this earnings season. Johnson & Johnson reported a nine-percent gain in sales to Europe, growing to $4.89 billion during the quarter.

Excluding some one-time items, first-quarter earnings were $4.4 billion, or $1.54 per diluted share, for an increase of 7.8% and 6.9%, respectively, over the same quarter of 2013.


The company boosted its full-year 2014 earnings guidance to between $5.80 and $5.90 per share, up from the previous $5.75 to $5.85 per-share range excluding special items.

After the stock market sell-off in January, Johnson & Johnson’s share price dropped to around $87.00 a share by early February. It has since made a full recovery, now trading close to $100.00.

I still view this company as a position worth considering for a long-term portfolio when it’s down. Typically, the stock isn’t down for long. Its five-year stock chart is featured below:

Johnson & Johnson ChartChart courtesy of

According to its numbers, Johnson & Johnson’s consumer products business is pretty flat, while medical device growth can be volatile. The anchor to the company’s business and its profitability remains pharmaceuticals, but the other business lines are complementary. Instead of just a pure-play large-cap pharma business, the diversification among other product lines helps with cash flow.

Johnson & Johnson has a track record of announcing dividend increases in the second quarter, particularly towards the end of April at its annual shareholders meeting. We’ll have to see whether the company does so again. Its current quarterly dividend is $0.66 a share. The next shareholders’ meeting is on April 24 in New Brunswick, New Jersey.

In a market trading near its high and experiencing breakout capital gains (2013), it’s fair to expect a flat to low-single-digit return the following year. This is why I still view dividend income as being so important.

Those investors looking for income opportunities can peruse the S&P 500 Dividend Aristocrats index or an exchange-traded fund (ETF) based on it. (See “Leading Stock Market Index a Boon to Income-Seeking Investors.”) Component companies are some of the best dividend paying stocks the marketplace has to offer, with rising annual dividends over many years.

Dividends really matter over the long haul, and even if you’re a growth-oriented investor looking for capital gains over income, automatic dividend reinvestment is a powerful long-term wealth creator not to be ignored.

Johnson & Johnson is a member of the S&P 500 Dividend Aristocrats and a perfect long-term candidate for dividend reinvestment.

Over two years, the stock has appreciated about 51%. With dividends reinvested, the company’s return on investment is 63%, which is a material difference.