Hook- Johnson & Johnson is an American multinational
corporation founded in 1886 that develops medical devices, pharmaceuticals, and consumer
packaged goods. The healthcare giant has been a component of the Dow Jones Industrial Average
since 1997 and is one of the world’s most valuable companies. In this video, I’m going
to explain why JNJ is one of the best dividend paying stocks and should be a staple in your
long term dividend stock portfolio.
Intro- My name is Zach and you should leave a like
and subscribe to the channel if you enjoy the video.You should never invest in a business
you don’t understand, so in this video I’m going to provide a full picture look at the
business and stock history of Johnson & Johnson.
Content- All the way back in 1886, Johnson & Johnson
was founded by Robert Wood Johnson and his two younger brothers. Initially, They manufactured
sterile surgical supplies, household products, and medical guides. The company innovated
in their field, making countless products and helping spread modern medicine throughout
the world. By 1894, they had more than 400 employees and 14 buildings. That same year
they launched Johnson’s Baby Powder, which is their first product in a category that
would become a significant part of their business. Additionally, they introduced the first maternity
kits which revolutionized the safety of childbirth. At that time, most babies were born at home
without the help of a doctor. The kits provided supplies and easy-to-follow instructions that
dramatically improved childbirth safety for both the mother and the baby.
Over the next few decades, their products would help save millions of lives. They provided
first aid kits and surgical dressing in the Spanish-American War, World War 1, and World
War 2. Additionally, during the 1918 influenza outbreak JNJ invented and distributed the
epidemic mask which helped prevent the spread of the flu. In 1944, the company decided to
go public and it’s stock was sold on the New York Stock Exchange. At this time, Robert
Wood Johnson the second wrote the company’s credo which would act as their guiding philosophy.
It read: “We believe that our first responsibility
is to the Doctors, Nurses, Hospitals, Mothers and all others who use our products. Our Products
must always be of the highest quality. We must constantly strive to reduce the cost
of these products. Our orders must be promptly and accurately filled. Our Dealers must make
a fair profit” The credo has since been modernized, but the
core principles remained as the company expanded into the juggernaut it is today.
The history of Johnson & Johnson is downright impressive. The positive impact of their products
and innovations are immeasurable. Honestly, I don’t think anything I say can do it justice.
If you want to do a deep dive into the history of the company, then I suggest you check out
this interactive timeline they have on their website. It takes you through the entire history
of the company and it’s actually very interesting. The link to this page is in the description
of the video. So what does Johnson & Johnson’s Business
look like today? The company is organized into three business segments: Consumer, Pharmaceutical,
and Medical Devices. The Consumer segment includes a broad range
of products focused on Baby Care, Skin & Hair Care, Wound Care, Topicals, Oral Health Care,
Women's Health, Consumer Healthcare, Over-The-Counter Medicines, and Nutritionals. These include
some of the most popular health & beauty brands. For example, in Skin Health JNJ owns Neutrogena,
Aveeno, DR.CI:LABO, NeoStrata, DABAO, Clear and Clear, Rogaine, and much more. In self
care JNJ owns Tylenol, Motrin, Zyrtec, Benadryl, Zarbee’s, Nicorette, Sudafed, and more.
In essential health JNJ owns Listerine, Band-Aid, JOHNSON’S Baby products, OGX, Maui Moisture,
and many other brands you’d recognize. According to the 2020 Q3 Earnings Report the
consumer segment represents 16.7% of the company’s total sales. In this quarter, consumer sales
increased 1.3%. However, this segment has an economic moat around it giving it staying
power long term. These brands individually have built strong recognition and loyalty,
which will allow them to control a significant portion of respective market share. For example,
the Band Aid Brand was created in 1921 with the introduction of adhesive bandages aimed
at covering small wounds and preventing infection. At this time, no similar product had existed
and people typically used rags and household coverings. This brand became so synonymous
with the product that most people just call all bandages Band-Aids. This brand recognition
has allowed them control significant market share in the Bandage space. Another great
example is Johnson’s baby products which have built significant brand loyalty and trust
over many decades. As of 2018, they control 37% of the market share, which provided them
$1.5 billion in sales. The Pharmaceutical segment is the largest
part of the company. According to the 2020 Q3 Earnings Report, this area represents 54.1%
of total sales. The Pharmaceutical segment is focused on six therapeutic areas: Immunology,
Infectious Diseases, Neuroscience, Oncology, Cardiovascular and Metabolism, and Pulmonary
Hypertension. Medicines in this segment are distributed directly to retailers, wholesalers,
hospitals and health care professionals for prescription use. Some of the key products
in this segment are Remicade, Simponi, Simponi Aria, Selara, Tremfya, Edurant, Prezista,
and a bunch of other drugs that are difficult to pronounce. (Joe Biden stumbling on words)
In this segment some products can build up significant brand recognition, but the main
competitive advantage here is patents. Many of these products are patented, thus they
have a 20 year window of limited to no competition. After the patent expires then competitors
can start selling generic versions. However, patent expiration isn’t the end of that
product as they have built a brand, customer base, and operate at a scale to keep price
competitive. Additionally, J&J is continually innovating to introduce new drugs. This allows
them to keep growing even when competition comes in. In Q3 2020, JNJ increased sales
in the pharmaceutical segment by 5%, which is quite good.
The Medical Devices segment is the second largest part of the company. According to
the 2020 Q3 Earnings Report, this area represents 29.2% of total sales. This includes a broad
range of products used in the orthopaedic, surgery, interventional solutions, and eye
health fields. These products are distributed to wholesalers, hospitals and retailers, and
used principally in the professional fields by physicians, nurses, hospitals, eye care
professionals and clinics. They include orthopaedic products; general surgery, biosurgical, endomechanical
and energy products; electrophysiology products to treat cardiovascular disease; and vision
products such as disposable contact lenses and ophthalmic products related to cataract
and laser refractive surgery. This segment also has competitive advantages
as many of the technologies will be patented. Most of these products are not directly consumer
facing and more business to business so the power of a brand operates differently. In
this case, it’s more the trust behind the backing of Johnson & Johnson as a company.
They have a reputation of efficacy so products owned and developed by Johnson & Johnson likely
carry a high level of trust. In Q3 2020, this segment decreased in sales by 3.6%, due to
short term problems, but in the long term it has seen consistent growth.
Alright so that’s JNJ’s current business, but how are they planning on growing the company?
The cornerstone of their growth strategy is investing in innovation. This is done through
internal R&D, but in large part through acquisitions of smaller companies. Acquisition is ideal
as much of the development risk is taken on by the smaller company and JNJ can swoop in
once the product is proven out. This is actually a win/win for both parties as Johnson & Johnson
can provide a distribution and scale that allows them to get the product to market much
easier. Additionally, an aging and growing global population means that more and more
people will have medical needs overtime. All of these will likely lead to stable growth
for JNJ. So now that we understand the business model
of Johnson & Johnson, it’s time to look at the stock as a dividend investor. JNJ has
seen consistent and predictable revenue growth. Over the last 10 years, the revenue has increased
from $61.5 billion to $82 billion, which gives it a 2.9% compound annual growth rate. This
is consistent with gross profit increases, as over the last 10 years the profit has increased
from $42.7 Billion to $54.5 Billion. This makes the 10 year compound annual growth rate
of gross profit to be 2.47%. This growth is incredibly reliable from JNJ. They’ve been
steadily growing for decades and I expect this to continue moving forward.
The Johnson & Johnson dividend has 58 years of dividend growth, putting it in an elite
class of dividend kings. The dividend has a 10 year compound annual growth rate of 6.87%
and a current annual payout of $4.04. The payout ratio has hovered between 43 and 53%
over the last 5 years, which means the dividend is very safe and still has room to grow overtime.
At the making of this video, JNJ stock is priced at $147.14, which gives it a 2.75%
dividend yield. Over the last 5 years, anytime you can buy JNJ over a 3% yield seems to be
a good buying opportunity in terms of optimizing starting yield on cost.
Johnson & Johnson is a global company with about half their revenue in the United States
and the rest international. It’s not only diversified by country, but by income streams
as discussed earlier. The company has countless products across it’s three business segments.
Of course, one of the most importants part of a business is it’s leadership. The CEO
of Johnson & Johnson is Alex Gorsky. He’s a military veteran who graduated from West
Point and received an MBA from the Wharton School of the University of Pennsylvania.
Gorsky has been with Johnson & Johnson since 1988 and worked throughout various departments
of the company, eventually becoming CEO in 2012. I’ve listened to multiple interviews
with Gorsky and came away impressed with his long term thinking for the company.
Also, I have to mention the Johnson & Johnson vaccine candidate for the virus which shall
not be named (voldemort pic) should be approved by FDA in early 2021 and possibly by the end
of 2020.
Bonus- JNJ is one of my holdings in my long term
dividend stock portfolio and I plan on it being my largest healthcare stock. Currently,
I have 7.013 shares of JNJ, with a dividend yield of 2.984%, and a cost per share of $135.66.
So in total I have $949.63 invested in the company. Personally, I’ll be buying more
when the share price is around or below my cost per share. However, don’t take my advice
blindly and be sure to do your own research before making any investment decisions.
Conclusion- Thank you for watching Dividend Data. I’d
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