Few companies have the brand awareness and breadth of healthcare conglomerate Johnson & Johnson (NYSE: JNJ). The Dow component is well-known for its Band-Aid and Tylenol brands of consumer products, but it also has a huge presence in the pharmaceutical and medical devices industries. Johnson & Johnson has delivered 14% average annual returns to shareholders for 30 years, but one thing that J&J investors haven't seen for a long time is a stock split. Some believe with the stock's recent advance, 2017 would be a good time for the company to return to its past practice of splitting its shares. Let's look more closely at Johnson & Johnson to see whether the healthcare giant is likely to do a split this year.
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Image source: Johnson & Johnson.
Johnson & Johnson stock splits in the past
Here are the dates and split ratios for the stock splits that Johnson & Johnson has done in the past:
Data source: Johnson & Johnson investor relations. Excludes three 5% stock dividends between 1948 and 1951.
As you can see, Johnson & Johnson has a long history of stock splits going back for 70 years. Early on, the company seemed to prefer higher split ratios, with three-for-one splits being common for a while. Yet more recently, J&J retreated to the more common practice of doing simple two-for-one splits.
How J&J handled splits differs somewhat depending on the time period you look at. In 1970, Johnson & Johnson's stock price had climbed as high as $180, and the ensuing three-for-one split combined with some downward stock movement combined to take the stock back toward $50 per share following the move. By 1981, J&J was faster on the draw, only letting the stock rise to about $110 per share before making the same three-for-one move.
Thereafter, two-for-one splits came once Johnson & Johnson seemed comfortable that triple-digit prices were coming and would last more than a short time. The company didn't do a split in 1987 despite the stock climbing as high as $105 per share, and that proved well-timed given the downturn that J&J suffered in the stock market crash that fall. Yet by 1989, Johnson & Johnson had regained most of that lost ground, and the company did a stock split even before the stock climbed back above $100. J&J shares rose as high as $120 before the next split in 1992, and the $100 mark played a key role in 1996 and 2001 as well.
Why did J&J stop splitting its shares?
After 2001, Johnson & Johnson stock went through a long period of relative stagnation. Healthy dividends put the brakes on share-price appreciation without sacrificing total return. Bear markets in 2002 and 2008 also affected J&J shares. As a result, Johnson & Johnson's stock price didn't hit triple digits until 2014.
Since then, though, J&J has had ample opportunity to do a stock split. Shares have climbed into the $120s without prompting such a move, and that makes the current level of $117 seem unremarkable by comparison.
In fact, the issue prompted direct questions from shareholders at annual meetings in 2013 and 2014. On the first occasion, CEO Alex Gorsky chose not to answer the question publicly, but in 2014, CFO Dominic Caruso said, "After careful consideration of [many] factors, we have no current plans to split the stock." Instead, the executives pointed to the performance of J&J's underlying business as the key to long-term success, essentially dismissing stock splits as unimportant.
Will Johnson & Johnson split its shares in 2017?
That change in attitude isn't unusual among companies currently. The need to do stock splits to make shares more affordable for ordinary investors no longer exists, with discount brokers making it possible to buy stock in increments much smaller than the 100-share round lots that dominated the investing world throughout most of the 20th century.
It's therefore unlikely that Johnson & Johnson will do a stock split in 2017. Instead, its focus will remain on driving growth in its pharmaceutical, medical devices, and consumer segments, seeking to deliver as much share price appreciation as possible and deliver the total returns that longtime J&J investors have come to expect over time.
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