Tag Archives: Dividend Stock

Time to add Johnson & Johnson to your Portfolio as Sales Projected to Grow despite Headwinds

Johnson & Johnson (NYSE: JNJ), the global healthcare behemoth, posted Q4 2017 revenue of $20.2bn (an increase of 11.5%) and 2017 full-year earnings of $76.5bn (an increase of 6.3%) on January 23, 2018. Diluted loss per share was $3.99 (adjusted diluted EPS was $1.74 which was an increase of 10.1% compared to Q4 2016); while diluted EPS for 2017 full-year was $0.47 (adjusted diluted EPS was $7.36 which was an increase of 8.5%). The decrease was primarily due to the provisional charge of $13.6bn which was incurred due to the Republican tax reform. Free cash flow in 2017 was $17.8bn.

Source: Yahoo Finance

Exceeding the expectations set at the beginning of 2017, Johnson & Johnson also gave a total shareholder return of 24% with its Pharmaceutical business and Medical Device business showing great strengths. During 2017, it completed around 60 acquisitions and invested $10.5bn in R&D and $35bn in Mergers & Acquisitions. It also executed four divestitures as a part of its business fortification strategy.

Investment Outlook

Source: Google Finance

As the above chart shows, the J&J stock rallied to all-time highs of $147 in January 2018 before falling down 13% to around $127 in March 2018. It went to its highs during 2017 due to its product launches, positive clinical data, and strong Q3 2017 results. However, it declined by 13% in February 2018 due to the following reasons:

  • Q4 2017 results showed negative earnings due to the tax reform act
  • Sales decline in some of its drugs, baby care division, and specialty surgery
  • Talcum powder lawsuits since last year

As per the latest survey by Reuters, J&J stock has received a ‘buy’ or ‘strong buy’ rating from 52% of its analysts and a ‘hold’ rating from 35% of them.

However, looking toward 2018, Johnson & Johnson stock can be seen as a good investment for prospective shareholders due to the following reasons:

  1. With $10.5bn investment in Research & Development, J&J would also be tapping on the developing markets across the world.
  2. J&J’s forward price to earnings ratio is 18.5, lesser than the S&P 500 stock ratio, which makes it a good quality buy.
  3. With a presence in over 60 countries and a massive healthcare division, J&J is uniquely positioned to gain from economies of scale.

Dividend Outlook

As a Dividend Aristocrat, J&J has raised its dividend for consecutive 55 years and now has a yield of 2.5%. The dividend payout ratio stands at around 60%. In 2017, it spent $8.9bn in dividends – i.e. 50% of its free cash flow of $17.8bn. It paid its latest dividend of $0.84 on March 13, 2018. The 5% annual dividend increase for 2017 is low compared to the last eight years (last two annual increases were 6.7% in 2016 and 7.1% in 2015).

Even though J&J is using its cash flow to improve shareholder value, it is also being prudent with the way it manages its finances. Looking at the string of mergers and acquisitions conducted over the past few years, it seems that it would be offsetting these costs by balancing its dividend payout. This could be a reason for a decrease in annual dividend growth. However, all in all, its robust dividend payout despite the future challenges makes it a reliable stock in a prudent investor’s portfolio.

How Does JNJ Stock Compare with the Top Healthcare stocks in the Dow Jones U.S. Health Care Index (DJUSHC)?

Pfizer, Inc: As Earnings Improve, Pharmaceutical Giant’s Stock Shows a Positive Move

Since its inception in 1849, Pfizer, Inc. (NYSE: PFE) has introduced game-changing medicines in the market. In the past few years, the pharmaceutical giant has garnered confidence amongst shareholders and prospective investors by delivering a string of robust medicines which have contributed to its annual revenue. In Q4 2017, Pfizer’s Eliquis raked in $170m in revenue which was 46% higher than the year-ago figure, while Chantix-Champix contributed $271m in revenue which was 28% higher than the year-ago figure.

Pfizer had a satisfactory result in 2017 when it posted gains of 2% (y-o-y) in its revenue for Q4 2017 ($13.7bn) and Year-end 2017 ($52.5bn). Its diluted Q4 EPS of 62 cents beat Wall Street estimates of 56 cents per share. Compared to Q4 2016, Pfizer’s Innovative Health unit, which contributes 60% of the revenue, grew by 6% in Q4 2017 ($8.2bn); while Essential Health segment, which contributes the remaining 40%, declined by 7% in Q4 2017 ($5.5bn). Its overall revenue was negatively impacted by $2bn as it lost marketing exclusivity rights for some of its drugs like Enbrel, Pristiq, Viagra, Lyrica, and Vfend.

Source: Yahoo Finance

With the passage of the new tax reform act, Pfizer expects a $15bn tax bill over eight years (effective tax rate of 17%) and plans to invest approximately $5.6bn in capital projects, employee bonuses, and pension plans. Considering that it also has a strong portfolio of robust growth drugs, shareholders can remain bullish on Pfizer stock.

Source: Google Finance

Pfizer’s stock has experienced ups and downs during the past decade due to the loss of patent exclusivity of some of its top-selling drugs. In 2012, the sales dropped by 10% when it lost the patent battle for Lipitor, the cholesterol fighter drug. This also led to underperformance in terms of market share, revenue and net income growth. However, in recent years the company has benefitted from its targeted acquisitions, namely,

  • Acquisition of the development and commercialization rights of the EU drug Zavicefta™, Merrem™/Meronem™ and Zinforo™ from AstraZeneca in December 2016 for $1,045m
  • Acquisition of Medivation in September 2016 for $14.3bn
  • Acquisition of Anacor in June 2016 for $4.9bn
  • Acquisition of Hospira in September 2015 for $16.1bn

In 2017, the stock grew roughly by 17% due to gains in its robust drug pipeline. If the 2018 guidance is followed through, we can safely predict stocks to reach $40 by the third quarter of 2018.

Why should you choose to stay with Pfizer stock?

Pfizer’s dividend is the primary reason. Its current dividend yield of 3.7% is above the industry’s average of 3.2% and the S&P’s 2.0%. In its recent announcement, Pfizer increased the dividend by 6% (from $0.32 to $0.34 paid on March 1, 2018) which marks the 317th quarterly dividend paid by the company. In addition to this, it has increased it in the past nine consecutive years.

For fiscal 2017, it reported free cash flows of $14.25 billion. $7.66 billion was paid as dividends and $5bn as share buybacks which means that Pfizer at present has a free cash flow dividend payout ratio of around 53%. The broad pipeline of products under its umbrella and its strong dividend payment are reasons for investors to consider Pfizer as a reliable stock.