When we look at some of the best dividend stocks available in the market, one name that continues to stand out is Johnson & Johnson (JNJ, Financial). The company has a significant interest in health care products and has had a dream run in the past 12 months. The stock closed at $118.81 on Sept. 23, declining half a percent from the previous day and to well below the longer-term highs above $125.
Overall, the stock has carved out a trading range, with $89.90 on a lower side and $126.07 on the high side. On a percentage basis, the stock price made a 52-week low that was followed by a stupendous rise of 32% over a one-year period. When we typically think of Johnson & Johnson stock, one of the most attractive features is the 2.69% dividend yield that has attracted investors for decades. With these types of investments it is critical to compare potential returns with the rate of return on a 401(k) as this will help with diversifying investment allocation for the long-term.
This is combined with an earnings multiple of 22.33 with the current market price and bullish momentum that has provided a 15.66% return on a year-to-date basis. The stock has nearly doubled over last five years.
But it is still important to note some of the additional factors that could lead to major price rises in the stock as we head into next year.
Chart View: JNJ Daily Chart
Johnson & Johnson has a strong interest in health care and personal hygiene products, pharma and surgical equipment. For this reason, Johnson & Johnson tends to be viewed as a member of a number of different categories (i.e. dividend stocks, biotech stocks or as a broader consumer staple stock). It presented a good performance for the quarter ending June 2016, with $18.48 billion in sales and $4.16 billion in earnings -- indicating 6% sales growth compared to the previous quarter.
In its businesses, one of the strongest areas has been its pharmaceutical business which has grown at double the rate when compared to growth in Johnson & Johnson as a whole. Off late, company has been challenged with currency headwinds and fierce competition in Hepatitis C treatments. This has led to some expert analysis putting the company behind Pfizer (PFE, Financial) as one of the best biotech investments at current levels. But it should be remembered that Johnson & Johnson is in latter stages of acquiring the optic business of Abbott at an estimated price of $4.33 billion in early 2017.
Abbott’s eye care business generated $1.13 billion in revenue in fiscal year 2015, so the move will further strengthen Johnson & Johnson’s position in the eye care business. Recently Johnson & Johnson received the U.S. FDA approval for Invokamet XR -- a type II diabetes drug, which will add to the top line and bottom line for the company going forward.
The acquisition of the eye-care business from Abbott will provide an opportunity to serve the ophthalmic market, which is expected to be valued at $27.5 billion by 2020. The company has also developed competition threatening Remicade treatment. But with its approval for Invokament-XR the company will be able to fuel future growth in revenue and earnings. The company has 54 years of dividend paying history, and its excellent stock performance over the last year makes it one of the must-have stocks for months to come.
The author has no position in any stock mentioned.
