The company’s last dividend increase was in when the Board of Directors approved a 7% increase to 61 cents/share. Johnson & Johnson's major competitors include Pfizer (NYSE:PFE), Bristol Myers Squibb (NYSE:BMY) and Novartis (NYSE:NVS).
Over the past decade this dividend growth stock has delivered an annualized total return of 6% to its shareholders.
The company has managed to deliver a 5.40% annual increase in EPS since 2003. Analysts expect Johnson & Johnson to earn $5.41 per share in 2013 and $5.78 per share in 2013. In comparison Johnson & Johnson earned $3.86 /share in 2012. The amount was lower due to one-time accounting charges against net income. The company has managed to consistently repurchase 1.10% of its outstanding shares on average in each year over the past decade.
Johnson & Johnson has a diversified product line across medical devices, consumer products and drugs, which should serve it well in the future. This makes the company largely immune from economic cycles. In addition, the company has strong competitive advantages due to its scale, breadth of product offerings in its global distributions channels, continued investment in R&D as well as its stable financial position. In addition to that Johnson & Johnson is expanding into new long term opportunities through strategic acquisitions. Emerging market growth and opportunities for cost restructurings should further help the company in squeezing out extra profits in the long run. Sales in drugs like Simponi, Stelara, Zytiga, Edurant, Incivek, Xaralto and Prezista should more than offset the generic erosion from older drugs which are losing their patent protection. The acquisition of Synthes, which was completed in 2012, is expected to generate significant synergies for Johnson & Johnson.
The company’s return on equity has declined from 30% to 18% over the past decade. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 11.70% per year over the past decade, which is higher than to the growth in EPS.
A 12% growth in distributions translates into the dividend payment doubling every six years. If we look at historical data, going as far back as 1972 we see that Johnson & Johnson has actually managed to double its dividend every five years on average.
The dividend payout ratio has increased from 38% in 2003 to 62% in 2012. This was caused by one-time charges against net income. The payout ratio based on forward EPS is standing at 45%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Johnson & Johnson is attractively valued at 14.60 times forward 2013 earnings, has a sustainable dividend payout and yields 3%. I recently added to my position in Johnson & Johnson.
Full Disclosure: Long JNJ
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