The healthcare company has generated positive returns for investors without putting their portfolios at much risk.
Johnson & Johnson ( JNJ 2.48%) is one of the largest, most popular healthcare companies in the world. It makes pharmaceuticals, consumer health products, and medical devices. Its business is diverse and it reaches people all over the world. It’s also a top dividend stock that has increased its payouts for decades.
While it has been a stable investment to hang on to over the years, this isn’t your typical high-growth stock. Those who invest in the business often sacrifice returns in exchange for safety. Would Johnson & Johnson have been a good stock to invest $10,000 in five years ago? Below, I’ll look at how much you would have made from investing that much into the healthcare stock and if it’s a better buy right now. The stock hasn’t moved much in five years
Johnson & Johnson is a low-volatility stock, so it doesn’t move along with the broader markets. That can be valuable to risk-averse investors because it means regardless of how the S&P 500 is doing, Johnson & Johnson won’t move as wildly as the stock market. That’s even true this year when the index is down more than 15% but Johnson & Johnson has only fallen by 5%.
The problem for investors is that safety comes at a cost of lower returns when times are good. In the past five years, while the S&P 500 has risen by 65%, Johnson & Johnson’s stock has only climbed 23%. And even if you include dividends, the S&P 500 is still up 80% versus the healthcare company’s total returns of 41%.
Five years ago, Johnson & Johnson was trading at approximately $132 a share. Investing $10,000 into the stock back then would have given you nearly 76 shares. Today, those shares would be worth approximately $12,348. That 23% return averages out to a compound annual growth rate of 4.3%. That’s a decent annual return, but it’s not going to get growth investors too excited about the business. Will the stock fare better in the next five years?
In 2017, Johnson & Johnson generated $76.5 billion in revenue, earning a pre-tax profit of $17.7 billion on that, which is 23% of the top line. This past year, it reported $93.8 billion in sales and before-tax income was $22.8 billion, at a slightly higher margin of 24%.
Moving forward, the company is spinning off its consumer health business to not only become leaner and more efficient but also to rid itself of the lawsuits it has been facing related to its talc-based baby powder. Last year, it also faced problems with certain Neutrogena and Aveeno sunscreen products, issuing a voluntary recall of them because low levels of benzene were found in the products.
In the near term, the company’s financials should decline due to the spinoff; in 2021, the consumer health segment brought in $14.6 billion in sales. However, it’s also been a slow-growing segment. In 2017, its sales totaled $13.6 billion, growing less than 8% since then. While this will put a small dent in the company’s financials, it will make Johnson & Johnson a faster-growing company by ridding itself of a sluggish division. At the same time, it will allow the business to focus more on pharmaceuticals, which make up the bulk of revenue (55%). Medical device revenue also plays a big role in the company’s business, but like consumer health, it hasn’t generated much growth over the years. Should you buy Johnson & Johnson stock today?
If you value a strong dividend and recurring payment, Johnson & Johnson is a stock that could do well for you. Its 2.8% yield is higher than the 1.5% that the S&P 500 averages. Plus, Johnson & Johnson has increased its payouts by 35% in five years. Its strong track record as a Dividend King suggests that the dividend will continue to rise in the future as well; Johnson & Johnson’s payout ratio is a manageable 63% of profits.
But if you also want a good growth stock to invest in, you will be better off going with other stocks . Johnson & Johnson has proven to be a safe stock but there hasn’t been much in the way of long-term growth. Perhaps by pivoting more toward pharmaceuticals that will change, but it will take time to see how that strategy plays out. For now, this isn’t a stock that as a growth investor I would invest in. Should you invest […]
source If You Invested $10,000 in Johnson & Johnson 5 Years Ago, This Is How Much You Would Have Today