Reinvesting dividends allows shareholders to unleash the power of compounding. To reinvest dividends, a shareholder simply uses a dividend payment to buy more shares of stock. In turn, additional shares mean additional dividend income, which then buys more shares, and so on. This creates a snowball effect that allows shareholder wealth to compound rapidly over time.
Johnson & Johnson (JNJ) is one of the best DRIP stocks for dividend growth investors. DRIP stands for Dividend Reinvestment Program, which allows shareholders to reinvest their dividends directly into buying new shares of the stock. Johnson & Johnson is one of a small group of companies that provides a DRIP service at no cost.
With a great business model, high dividend yield, and a long history of increased dividends, Johnson & Johnson is among the top no-fee DRIP stocks.
Business Overview And Recent Events
Johnson & Johnson is a diversified health care company and a leader in the area of pharmaceuticals (~49% of sales), medical devices (~34% of sales), and consumer products (~17% of sales). The company generates total revenue in excess of $81 billion per year.
The company performed well in 2018. For the year, adjusted earnings per share increased 12% from 2017. Revenue growth of 7% fueled Johnson & Johnson’s earnings growth. By segment, the company’s pharmaceutical operations grew revenue by over 5%, thanks to 25% growth in oncology and 10% growth in immunology. These represent Johnson & Johnson’s primary growth catalysts moving forward. The medical devices and consumer segments were once again steady, with modest revenue growth and strong profit margins.
Johnson & Johnson has a strong consumer franchise which provides stability to the company, especially during economic downturns. Pharmaceutical sales have strong growth potential, but also can be volatile from year to year. This is the value of having a large consumer franchise, where demand tends to be resilient even during recessions. Johnson & Johnson has a large portfolio of strong consumer brands, including Band-Aid, Listerine, Neutrogena, as well as over-the-counter medicines Motrin, Tylenol and Zyrtec.
Johnson & Johnson expects 2019 to be another strong year. At the midpoint of 2019 guidance, the company expects EPS of $8.58, which would represent approximately 5% growth. This will allow the company to continue raising its dividend each year.
A True Dividend King
Johnson & Johnson has increased its dividend for 56 consecutive years. Not only is it a member of the Dividend Aristocrats, but it is also a member of the even more exclusive list of Dividend Kings. The Dividend Kings are a select group of stocks with at least 50 consecutive years of dividend increases.
Plus, Johnson & Johnson has an expected dividend payout ratio of 42% for 2019, which leaves plenty of room for continued dividend increases. The company delivered a 7% dividend increase in April 2018. And with four flat quarterly dividends paid over the past year, Johnson & Johnson is likely to provide another dividend increase for the next quarterly declaration.
Johnson & Johnson stock has a 2.7% dividend yield and offers shareholders a no-fee DRIP service. This makes Johnson & Johnson one of the most attractive dividend growth stocks in the S&P 500 Index.
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