One of the worst mistakes an investor can make is falling in love with a stock. Just because an investment has worked out in the past doesn’t mean that the company will continue to produced earnings and revenue numbers that drive the share price higher. This type of thinking can blind an investor to the current business performance, which could lead to a sharp decline in share price.
Along those same lines, there is no guarantee that a company with a lengthy dividend track record will continue to pay and raise its dividend indefinitely. If earnings were to decline sharply, the company’s ability to pay an increasing dividend might disappear.
That being said, there are a small group of companies that have managed to continuously increase earnings per share while also raising the dividend at impressive levels for lengthy period of times. These types of investment can be rightly labeled as a “Forever Stocks”.
One company that I feel deserves this ranking is Johnson & Johnson (JNJ). This article will look at Johnson & Johnson’s earnings history, recent financial results, dividend history, and valuation to determine if now is an appropriate time to purchase shares of this company.
Company Background
Johnson & Johnson is a diversified healthcare company. The company is composed of three divisions, the largest being pharmaceuticals (~49% of sales), followed by medical devices (~34% of sales) and consumer products (~17% of sales). Johnson & Johnson generated $76 billion in revenues last year. With a market cap of $362 billion, Johnson & Johnson is one of the largest companies in the world.
Earnings History and Recent Earnings Results
Earnings can fluctuate from year to year based on market conditions, demand for products and investments that companies make into their businesses. Adjusting for one-time costs, Johnson & Johnson has increased earnings per share for the past thirty years. Very few other companies can say that. Only once from 2008 through 2017 did Johnson & Johnson see a decline in reported earnings (2015). This streak becomes even more impressive when you remember that this time period includes a recession.
