Dividend Aristocrats Part 50: Johnson & Johnson (JNJ)

Growth & Total Return Expectations

Johnson & Johnson realized 5.8% constant-currency adjusted earnings-per-share growth in fiscal 2015.

This is right in line with historical results for Johnson & Johnson. Over the last decade, the company has compounded earnings-per-share at 5.7% a year.

Going forward, I expect Johnson & Johnson to continue growing its earnings-per-share in the 5% to 7% a year range – which is in line with historical growth.

Johnson & Johnson’s growth will be driven by growing health care demand in emerging markets and aging populations in developed markets.

The health care industry benefits from aging populations as older people tend to require more health care.  As the baby boomer generation in America continues to age, Johnson & Johnson will likely see its sales rise.

Johnson & Johnson stock currently has a dividend yield of nearly 3%. The company’s historical dividend yield over the last ~20 years is shown below:

Johnson & Johnson investors should expect total returns of 8% to 10% a year from the company from:

– 3% dividend yield

– 5% to 7% expected earnings-per-share growth

Valuation & Final Thoughts

With expected total returns of 8% to 10% a year, Johnson & Johnson will likely match the markets long-term total return average of around 9% a year – with less volatility.

As a result, Johnson & Johnson should trade for at least the same price-to-earnings multiple as the S&P 500 – but it doesn’t.

Johnson & Johnson (NYSE:JNJ) currently trades for an adjusted price-to-earnings ratio of 16.3 versus 20.1 for the S&P 500. The company appears somewhat undervalued at current prices.

Johnson & Johnson’s combination of a ~3% dividend yield, long history of success, and an extremely low stock price volatility make it a Top 20 stock using The 8 Rules of Dividend Investing.

The company makes an intriguing investment for risk-averse investors looking for growing income in the health sector.

Disclosure: None