Buy Johnson & Johnson (JNJ)?

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Stocks that stand the test of time are often ones that have a diversified product portfolio of world class brands. Companies such as these, whose products are purchased regardless of the prevailing economic climate, have the financial ability to weather any economic storm.

Few companies have reached iconic stature as Johnson & Johnson (NYSE:JNJ) has over its many decades of dependability and stability.

After a considerable rally over the past couple years, is there still room for J&J to run?

Johnson & Johnson (NYSE:JNJ)

A red-hot sector

Despite its reputation as a lumbering giant, Johnson & Johnson (NYSE:JNJ) has displayed share price gains over the past year that are anything but slow-and-steady. Johnson & Johnson (NYSE:JNJ) is up more than 20% just to start 2013, and that doesn’t even include the generous dividend payments the company is known for.

Fortunately for their investors, many of the major publicly-traded health care giants in the United States have followed suit. For example, Pharmaceutical giants Bristol Myers Squibb Co. (NYSE:BMY) and Eli Lilly & Co. (NYSE:LLY) are both up more than 30% over the trailing 52 weeks.

The spiking share prices among these stocks are confusing given the struggling underlying performance of many of these firms. For example, Bristol Myers Squibb Co. (NYSE:BMY) reported full-year 2012 net sales that were 17% lower than the previous year. Likewise, Eli Lilly reported that full-year 2012 revenues declined 7% year over year.

It’s understandable why these stocks are so attractive to investors. Since interest rates are still near historic lows, traditional bank products like certificates of deposit pay almost nothing in interest. Even more aggressive investments like bonds still don’t pay much in terms of yield.

As a result, Bristol Myers Squibb Co. (NYSE:BMY) and Eli Lilly & Co. (NYSE:LLY), which both yield in excess of 3%, are seen as reliable places to earn yield in today’s low-rate environment.

Unfortunately, dividend growth hasn’t kept up with the impressive share gains. Bristol-Myers Squibb’s last four dividend increases were only in the amount of one penny per share. Eli Lilly, meanwhile, hasn’t increased its dividend since 2009.

A cloudy picture going forward

Making things even more confusing, it’s not as if Eli Lilly & Co. (NYSE:LLY) and Bristol Myers-Squibb are poised to grow significantly in the near future.

Both companies are undergoing the well-publicized loss of patent exclusivity that the pharmaceutical industry as a whole is struggling to deal with.  This is evidenced by the lackluster growth trajectories expected of each company.

Consider that Eli Lilly and Bristol Myers-Squibb trade for forward P/E ratios of 18 times and 21 times, respectively.

Startlingly, Eli Lilly’s 2014 earnings per share are projected to decline 30% from current year expectations, according to data compiled from 19 analysts by Yahoo Finance.  This is primarily why Eli Lilly hasn’t given guidance as to when investors can finally expect a dividend increase.

Meanwhile, Johnson & Johnson (NYSE:JNJ) holds a much more impressive dividend history than its two rivals, and due to its diversified product portfolio, will continue that streak for a long time.

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