Is JNJ a dividend company you can hold forever?
We know from history that some companies do well in bad times. Whether it's because of the nature of their business or their financial strength. But can these particular companies hold on forever? I mean, specifically probably the most stable of them?
Many investors are wondering the question - can a company be held "forever"? Of course, that would be nice, but of course there is no universal answer. Looking specifically at the history of $JNJ-0.4%, an affirmative answer to this question is offered. But is it really?
Let's take a look at a few factors that may influence this. After all, Johnson & Johnson is a solid company with a long history, but it also has some risks that you should consider if you're considering it as a long-term dividend investment.
JNJ has a 59-year track record of continuously increasing its dividend payout, making it one of the most consistent dividend payers in the market. The company enjoys a strong position in its core healthcare segments - pharmaceuticals, medical devices, and consumer healthcare. Its balance sheet is healthy and can generate enough cash to sustainably fund dividends.
On the flip side, JNJ is facing a number of lawsuits related to its implants, body powders and prescription drugs that may impact the company's growth in the future. There is also a lot of competition in the pharmaceutical industry, which makes it difficult to predict future growth and profitability. The stock has moved more sideways in recent years, indicating investor concerns about JNJ's outlook.
Overall, despite an excellent dividend payout history, the risks associated with litigation and competition in the industry should lead to caution and careful monitoring.
Competition and the sector
Johnson & Johnson operates in the healthcare sector, which is considered relatively stable and resilient. The company operates in three key areas:
Pharmaceuticals account for the largest part of JNJ's turnover, at around 50%. JNJ manufactures a range of drugs including those for the treatment of neurological diseases, infectious diseases, high blood pressure, depression and across many other therapeutic areas. In this part of the business, it faces strong competition from big pharmaceutical companies such as Pfizer, Roche, Novartis and Merck & Co.
Medical devices are another important part of JNJ's business, accounting for about 30% of revenues. JNJ is a key player in medical implants such as blood glut, artificial knees and hips, as well as eye implants, surgical instruments and imaging technology. Companies such as Abbott, Medtronic, Stryker, Boston Scientific and Becton Dickinson compete in this segment.
The remaining 20% of revenues come from consumer healthcare through skin care, personal care and individual living needs. Here the main competitors are giants such as Procter & Gamble, Unilever, Colgate-Palmolive and Reckitt Benckiser.
Current stiuations
Johnson & Johnson's sales grew 5.6% year-over-year to $24.8 billion in the first quarter of 2023. Sales are expected to continue to grow in the second quarter. Most of the revenue growth comes from interventional solutions and cancer drugs. However, the pharmaceutical segment could be under pressure from 2024 onwards. This is due to the impending launch of biosimilars to Stelara, which is a significant source of J&J's revenue. Patents on Stelara expire between 2023 and 2024, and several companies are working on biosimilar versions.
JNJ intends to spin off the consumer products segment. This will allow JNJ to focus its R&D on new therapies and expand its medical device segment. Although the exact strategy has not been presented by the management, the spin-off of the consumer segment and the USD 16.6 billion acquisition of Abiomed marks a turning point for JNJ.
Despite the legal hurdles, JNJ is a strong and good long-term choice for dividend-oriented investors.
As I mentioned in the introduction - The main risk facing JNJ is the ongoing legal proceedings related to certain products. One of them was contaminated with asbestos and was withdrawn from sale in 20 years. This has the potential to significantly impact JNJ's financial operations. JNJ has increased the intended settlement amount to US$9 billion. This would impact the company in the form of an additional loss of $2 billion in any quarter it is realized. JNJ has attempted to mitigate the legal impact on the core business unit by moving the related claims into a specially created business unit and filing for bankruptcy. This manoeuvre requires the consent of 75 % of the existing claimants, i.e. approximately 60 000 persons, but may not hold up in court. JNJ argues that the claims are without merit, but argues that dragging out the case has led to uncertainty in the outcome.
So is $JNJ-0.4% a company fit to be held forever? Of course, that cannot be said with certainty. It is an extremely strong and stable company. But it is probably not an investment that can be recommended for ignoring. It is always advisable to monitor your positions closely.
Disclaimer: This is by no means an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.
