Johnson & Johnson (JNJ -0.16%) is a stalwart in the healthcare industry, and it’s also a rock-solid dividend investment to own. The company has been increasing its dividend payments for 60 consecutive years and has a track record few other companies can boast about. But what makes it even more impressive is the rate at which it’s been raising its payouts by.
Johnson & Johnson has increased its dividend by 5% or more in each of the past 10 years
One of the things income investors should pay close attention to when looking at dividend growth stocks is the rate they increase their dividend payments by. Sure, a company may have been increasing its dividend payments for decades, but if it’s only making nominal increases each time, then that isn’t necessarily translating into much more dividend income for your portfolio.
Take Walgreens Boots Alliance as an example. In July 2022, the pharmacy retailer announced a razor-thin 0.5% increase to its dividend. Nonetheless, it was enough to extend its dividend growth streak to 47 consecutive years. On a $10,000 investment, however, that would be the equivalent of just an extra $50 in annual dividend income.
What makes Johnson & Johnson stand out is that the company not only has a long streak and is a top Dividend King, but it has also been aggressively raising its dividend payments. Here’s a look at the rate at which the company has been increasing its payouts by over the past decade:
Data source: Company filings. Chart by author.
In the last 10 years, the company’s dividend payments have risen by 85%, for a compound annual growth rate of 6.4%. That’s actually lower than the company’s most recent rate hike of 6.6%. That’s great news for investors as it means the company has not been slowing down its rate of increases. Again, it reinforces just how impressive Johnson & Johnson’s stock is as a dividend investment. And with the company’s payout ratio still at a manageable 66%, it wouldn’t surprise me if the company were to make another solid rate hike later this month.
The business has remained resilient over the years
Johnson & Johnson’s solid pharma, medical device, and consumer health (which the company will be spinning off later this year) segments have helped the company generate strong and consistent results, and that has allowed it to continue raising its dividend without issue. While it has faced multiple legal problems and lawsuits relating to some of its products, the company has maintained a strong profit margin of around 19% in the past five years.
JNJ Profit Margin (Annual) data by YCharts.
One legal battle it may soon be able to resolve relates to its talc lawsuits. Although it may cost the business $8.9 billion in today’s dollars, when spread out over a period of 25 years, it’s a manageable amount for the business, given its strong financials. If it’s successful in getting the proposed settlement approved, it will make the stock an even safer investment moving forward as it will get rid of a lot of legal uncertainty surrounding the business.
Is Johnson & Johnson’s stock a buy?
If you’re a dividend investor, Johnson & Johnson is a stock that you should consider adding to your portfolio. The business is hugely profitable, and despite all the adversity it has faced, it has continued posting strong profits while also raising its dividend at relatively high rates.
With the company spinning off its slow-growing consumer health business, that can also allow Johnson & Johnson to focus more on pharmaceuticals and medical devices, which have better growth prospects. All in all, this can be a solid long-term investment to hang on to.