Johnson & Johnson Is Ripe for the Picking

| About: Johnson & (JNJ)

Johnson & Johnson’s (NYSE:JNJ) 3.47 percent dividend yield is hard to pass by, especially considering today’s low-return economic environment with 10-year Treasuries yielding a mere 3.15 percent. JNJ also boasts the highest available long-term credit rating of AAA, making that dividend yield even more permanently enticing. JNJ appears to be out of woods from all the recalls in the consumer products division and can now freely concentrate on a robust product-pipeline to replace expiring drug patents.

Johnson & Johnson operates in three distinct business segments, which are Consumer, Pharmaceutical, and Medical Devices and Diagnostics. A further look at their 10 years of profit margins further illustrates how lucrative their overall business returns can be:

Profit Margins at Fiscal End

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

17.0%

17.5%

18.2%

17.2%

17.3%

19.9%

20.7%

17.3%

15.2%

19.8%

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The Company also supports adequate bottom line growth coupled with ample dividend increases and book value expansion as showcased in the following table:

Compound Annual Growth since fiscal end 2000

Earnings Per Share

11.82%

Dividends Per Share

13.45%

Book Value Per Share

11.73%

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Moreover, JNJ produces rather exceptional amounts of annual free cash flow. A quick look at the cash-flow statement will show that there are no threats to dividend increases in addition to more than enough funding for annual acquisitions, R&D, and stock buybacks. The Company recently raised its earnings guidance for full-year 2010 to $4.70 - $4.80 per share, reflecting recent currency exchange rates. (Note: JNJ’s guidance excludes the impact of special items.)

William Weldon, Chairman and CEO since 2002, quoted in JNJ’s Q3 press release,

We continue to deliver solid earnings while investing in our future through complementary strategic partnerships and acquisitions. Our pharmaceutical business has returned to growth this year and we continue to advance our pipeline with promising clinical data in key therapeutic areas. We are pleased with the strong performance of newly launched products in both our pharmaceutical and medical device and diagnostics businesses.

While JNJ is not a rags-to-riches investment vehicle, it is an extremely safe stock and is currently trading for a fair price (P/E of 12.80). In addition to portfolio diversification and a nice dividend yield, JNJ could yield the buy-and-hold investor a satisfactory low double-digit return if the company’s development pipeline gains serious traction. After all, with all the growth potential abounding in the healthcare industry, JNJ may be a suitable addition to any portfolio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.