Dividend Yield Is Once Again an Investor’s Best Friend
In January 2013, institutional investors got fed up with political procrastination and big money began buying safe dividend names like Johnson & Johnson (NYSE:JNJ) stock.
It was, in my view, the beginning of the current secular bull market in stocks. Knowing that the monetary policy was onside, what institutional investors started buying was earnings reliability and yield.
Times change as they always do but these same dynamics are what the big money is still after and it’s why an existing winner like Johnson & Johnson has good return potential for the next several years.
In the market’s recent price correction, JNJ stock did break its 50-day simple moving average. But the position was actually in consolidation before this (after a huge gain) and now it’s back up again, looking good with a reasonable valuation and a three-percent dividend yield.
A blue chip, dividend-paying pharmaceutical stock is a welcome addition to investment-grade portfolios. Johnson & Johnson stock is, of course, a proven wealth creator but the key with this position is its other businesses, which help reduce investment risk.
Pharmaceuticals pay all the bills but the company’s medical devices and consumer products keep the cash flowing.
The stock chart for Johnson & Johnson stock is featured below:
Chart courtesy of www.StockCharts.com
Johnson & Johnson has a strong history of paying out rising dividends to stockholders. The company’s actually due for another increase. I expect this to happen next quarter.
Naturally, like any large multinational, currency translation is having a material effect on the company’s top-line growth.
But, like all big corporations, Johnson & Johnson keeps squeezing its expenses and management will keep buying back a lot of the company’s shares. In October of last year, the company’s board authorized another $10.0 billion in share repurchase authorization.
What’s remarkable about JNJ stock is that it has held up so well compared to the broader market so far this year.
This is telling because it’s a very good indicator for upcoming quarters. All the company has to do is not miss with upcoming earnings. The market already expects sales growth to be minimal. Earnings maintenance and a dividend increase should be enough to see this position advance even if the broader market remains flat.
The Bottom Line on JNJ Stock
In a slow-growth world where genuine economic growth is a difficult thing to come by, a portfolio should have some exposure to the healthcare and/or pharmaceutical industry. It offers stability, recession-resistance, and the quarterly cash flow that so many other industries don’t.
Wall Street earnings estimates for JNJ this year have been ticking higher across the board. It’s still only modest expectations (earnings growth of about five percent over last year) but combined with the company’s dividend, it’s all institutional investors will need to bid this position further.
It is a new interest rate cycle, but still very much an accommodative environment for equities. I do believe this is a secular bull market and that big investors still want the market’s best-quality positions.