The Definitive Guide to Johnson & Johnson Stock Dividends

By Dan Caplinger Markets Fool.com

Well-established companies often pay dividends, but few companies can match the success that Johnson & Johnson (NYSE: JNJ) has produced over the years. For well over half a century, the healthcare conglomerate has built up an impressive track record of boosting its dividends to shareholders each year, and the company's 2.6% yield is above the market average currently. Supporting that history has been a commitment to growth that has led to stock splits, a rising market capitalization, and new advances that have helped millions of people across the globe. Given the company's overall performance, it's reasonable to expect Johnson & Johnson to continue building on its dividend history well into the future.

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Johnson & Johnson's history of dividend payments

Johnson & Johnson's history of paying dividends dates back well into the past. For 55 years, the company has given its shareholders annual dividend increases, and that has earned it a spot among the elite Dividend Aristocrats. Even within that group, J&J's streak puts it among the top handful of stocks for its long-term devotion to dividend growth.

Moreover, the pace of Johnson & Johnson's dividend growth has been remarkably consistent. During the late 1990s and early 2000s, the healthcare conglomerate was able to sustain double-digit percentage dividend increases annually. As the company grew, the pace of dividend growth slowed somewhat. But even recently, increases have typically been in the neighborhood of 7%, with some years featuring larger payouts.

JNJ Dividend data by YCharts. Note: Small spikes and dips represent calendar timing effects and not actual changes in dividend policy.

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Still, the most recent dividend increase did raise a few new concerns. Back in April, Johnson & Johnson decided to set its annual dividend boost at just 5%, paying $0.84 per share on a quarterly basis. That brought the stock's yield up slightly, but income investors had hoped for a larger increase. Yet some of those who follow the stock suggested that the smaller dividend increase might have signaled an intent to spend some of J&J's ample cash flow on a major acquisition. Despite the recent announcement of its decision to acquire Actelion for a price tag of $30 billion, Johnson & Johnson has further room for acquisition-led growth if it so chooses.

What's next for Johnson & Johnson dividends?

If Johnson & Johnson is indeed moving into an acquisition phase, then it's possible that dividend growth will take a secondary role. However, J&J investors probably don't need to worry about a flat or falling dividend anytime in the immediate future.

For one thing, Johnson & Johnson's payout ratio is quite healthy. At just 56%, the metric gives J&J the room it needs to make future dividend increases while still leaving plenty of its income available for internal growth, mergers, or other methods of returning capital to shareholders.

Image source: Johnson & Johnson.

Also, investors are clamoring for Johnson & Johnson to find new avenues for growth. In particular, revenue challenges have troubled some investors, and weakness in J&J's consumer products division has been inconsistent with the desire to take full advantage of the Johnson & Johnson brand to bolster worldwide growth. With many regions of the globe seeing a rise in the consumer class, it's important for J&J to make its presence there known, and yet the company hasn't made huge progress with its consumer products for a while. Even pharmaceutical sales, which had been carrying the company forward, have started to show signs of fatigue. Johnson & Johnson should be up to the task of finding a way to rebound, and that in turn should help feed the financial engine that produces cash for J&J dividends for years to come.

Despite some short-term issues, there's no reason for Johnson & Johnson investors to panic about the prospects for the healthcare giant's dividend. J&J remains committed to continuing its long streak of dividend growth, and with so many ways to bolster its overall business, the only question for shareholders is which direction Johnson & Johnson will go and when the results of its efforts will show up in the stock price going forward.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Johnson & Johnson. The Motley Fool has a disclosure policy.