This Health Care Dividend King Offers a Remedy for Hopeless Investors

The markets are in free-fall, as coronavirus panic sets in and shows no signs of easing any time soon. But long-term investors should resist the urge to panic. Instead, those with a long-term focus should look for high-quality stocks to buy, as the market sell-off has presented multiple opportunities. For example, Johnson & Johnson is a time-tested Dividend King, a group of stocks that have raised their dividends for over 50 years in a row. J&J has a proven business model that can withstand even the deepest economic downturns. Shares of J&J have significantly outperformed the S&P 500 so far this year, with a 9% year-to-date decline versus a 25% decline for the broader index. Investors can expect J&J's outperformance to continue in a recession. Diversified Business Pays Dividends Founded just two decades after the Civil War, Johnson & Johnson is a diversified health care company and a leader in the area of pharmaceuticals, which makes up about half of its sales. Medical devices make up more than a third of its sales and consumer products just about 17%. The company currently generates annual sales in excess of $85 billion. When Johnson & Johnson reported earnings results for the fourth quarter and full year results in late January, it showed adjusted earnings-per-share totaled $1.88 for the quarter, which topped estimates by a penny, but was 4.6% lower than the previous year due to rising expenses. But revenue increased 1.7% for the fourth quarter, to $20.8 billion. For the year, adjusted earnings-per-share was $8.68, 3 cents above our estimates and a 6% increase from the previous year. Revenue increased 0.6% to $82.1 billion. Currency reduced revenue by 2.6% for the year, meaning organic revenue actually increased by over 3% for the year. Pharmaceutical sales grew 3.5% on a reported basis. Immunology had another solid quarter, with 5.4% growth for the group. Revenues for the Consumer segment rose 0.9%. Beauty continued its string of strong quarters as Neutrogena and Aveeno have increased market share. Over-the-counter sales remain driven by Tylenol as well as Pepcid. This product group had sales growth of 4.1% in the fourth quarter. Lastly, Medical Devices were down 0.5% for the second consecutive quarter. Johnson & Johnson's surgery business remains challenged, posting a 5.6% decline in revenues. But orthopedics returned to growth in the quarter, up 0.5%. Johnson & Johnson expects adjusted earnings-per-share in a range of $8.95 to $9.10 for 2020. At the midpoint, this would be an 4% increase from results for 2019. Revenue is seen as falling between $85.4 billion to $86.2 billion. The midpoint of revenue guidance would be a 4.5% improvement from the prior year. Multiple Catalysts for Growth The coronavirus outbreak threatens a global recession in the near term. While many industries will enter a downturn, the health care sector is uniquely positioned to ride out a recession relatively unscathed. After all, people will always need health care products, even during recessions, and demand for health care will likely increase during a pandemic. As a result, J&J's growth catalysts remain intact. The company's most promising growth catalyst is its pharmaceutical pipeline. For example, Stelara, which treats immune-mediated inflammatory diseases and is the company's top-grossing product, increased 18% in the most recent quarter due the continued strength of uptake in Crohn's disease treatments. Oncology showed the most growth within pharmaceuticals, with sales increasing 9.1% as Darzalex, which treats multiple myeloma, grew 42% due to market share gains in the U.S. and the European Union. Sales for Imbruvica, which treats lymphoma, were higher by 25% on increased market share. Johnson & Johnson shares ownership of Imbruvica with AbbVie through that company's purchase of Pharamcyclics in 2015. Johnson & Johnson has a broad and diversified product portfolio, especially in pharmaceuticals as its future pipeline should lead to continued growth in the years ahead. The company has a long history of generating steady and consistent growth. Johnson & Johnson has grown earnings over the past 10 years at a rate of 4.8%. The company managed to grow earnings before, during and after the last recession, showing that the company's products are in demand regardless of market conditions. Johnson & Johnson: Dividend Royalty J&J's long history of steady growth has allowed it to return cash to shareholders for decades, primarily through dividends and also through share repurchases. The company is especially attractive for income investors, as it possesses one of the longest histories of dividend growth in the entire stock market. Johnson & Johnson raised its dividend by 5.6% in 2019, representing the 57th consecutive year of dividend increases. The dividend payout is highly secure, even if a deep and prolonged recession were to take effect. The company has an expected dividend payout ratio of 42% for 2020 based on the midpoint of management EPS guidance. This provides plenty of financial cushion for continued dividend increases each year moving forward, even if earnings were to take a temporary dip. Based on its recent share price, Johnson & Johnson stock has a current dividend yield of 3%, which significantly exceeds the average dividend yield of the S&P 500 Index. The stock also has a reasonable valuation, trading for a 2020 price-to-earnings ratio below 15, a very modest valuation for such a high-quality company. One of Johnson & Johnson's key competitive advantages is the size and scale of its business. The company is a worldwide leader in a number of health care categories. Johnson & Johnson's diversification allows it to continue to grow even if one of the segments is underperforming. This can be seen in the last quarterly report where declines in Medical Devices and Consumer were offset by Pharmaceuticals. There are not many stocks that investors can buy and hold for a lifetime. But Johnson & Johnson is just such a company. It has generated outstanding returns for several decades, and we believe it will continue to outperform the market, particularly if a recession hits in the near future. It will also likely outperform the market-based on coronavirus concerns, as demand for health care products and services is only going to increase amid a pandemic. While the recent market sell-off has many investors terrified, long-term investors should remain calm and use the decline to their advantage by buying high-quality dividend growth stocks such as Johnson & Johnson.

This Health Care Dividend King Offers a Remedy for Hopeless Investors

JNJ should survive a recession and prove in demand in a health crisis.

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