Tuesday, April 14, 2020

Johnson & Johnson (JNJ) Hikes Dividends By 6.30%

Johnson & Johnson (JNJ), together with its subsidiaries, is engaged in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices & Diagnostics. This dividend king has paid dividends since 1944. Dividend increases have been like clockwork every year for decades. Check my analysis of Johnson & Johnson (JNJ) for more information about the company.

I just read that Johnson & Johnson (JNJ) has hiked dividends by 6.30% to $1.01/share. This marked the 58th consecutive annual dividend increase for this dividend kingThere are only 28 companies in the US which have managed to increase dividends annually for at least 50 years in a row.

Over the past decade, Johnson & Johnson has managed to grow dividends at an annualzied rate of 6.90%/year.

When reviewing press releases that discuss dividend increases, I always find it helpful to see the tone from top management. I especially liked what the CEO had to say (Source: Press Release):

"In recognition of our 2019 results, strong financial position and confidence in the future of Johnson & Johnson, the Board has voted to increase the quarterly dividend for the 58th consecutive year," said Alex Gorsky, Chairman and Chief Executive Officer of the company.

This dividend increase is a testament to the stability of the business model. In a period where other companies cite current conditions as unprecedented, Johnson & Johnson actually can provide guidance on revenues and earnings for 2020. It is reassuring to understand that long term fundamentals remain intact, even if 2020 guidance is lowered to reflect COVID-19 impact and related investments.

In fact, I used Johnson & Johnson a couple of weeks ago to illustrate that even if the shutdowns cause earnings to be zero for 2020 and 2021, long-term value of a business like this dividend king would not be impaired as much as it had been. Please check my post titled Dividend Investing and Covid-19 Disruptions.

The company lowered 2020 guidance to $7.50 - $7.90/share from $8.95 - $9.10/share. In terms of valuation, I would be interested in the stock at lower prices than today.  Perhaps a starting yield of 3% would be a decent entry point, equivalent to a price of $134/share or lower.

There were a few more companies that I expect to increase dividends this month, which I discussed a couple of days ago. I have a high level of confidence that most of those would also hike dividends this month.

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