Johnson & Johnson (NYSE:JNJ) Stands Out as a Top Dividend Stock for Reliable Income Investors

Johnson & Johnson (NYSE:JNJ) appears as a strong option for dividend investors after meeting a detailed screening process aimed at finding high-quality dividend-paying stocks. The screening approach focuses on companies with good dividend traits, steady profitability, and sound financial condition, important elements for reliable income generation. Stocks are selected using the ChartMill Dividend Rating (minimum 7/10), confirming solid dividend measures, while further checks for profitability (minimum 5/10) and financial condition (minimum 5/10) help exclude firms with unstable payouts or hidden issues.

Dividend Strength: Consistency and Growth

Johnson & Johnson is notable for its reliable dividend history, a key point for income-focused investors. Important details from its fundamental analysis report include:

• Good Yield: JNJ currently provides a dividend yield of 3.16%, better than 93% of its pharmaceutical industry competitors and above the S&P 500 average of 2.4%. Though not the highest yield, it balances income and security.
• Dividend Growth: The firm has raised its dividend each year for more than 10 years, with a 9.24% average growth rate over the last five years—a signal of management’s focus on rewarding shareholders.
• Payout Stability: The payout ratio of 53% is somewhat high but stays within acceptable levels, backed by steady earnings. Still, investors should be aware that recent earnings growth has been slower than dividend growth, requiring attention.

These figures match the screening standards, which highlight not only high yields but also the capacity to maintain and increase dividends over time.

Profitability: A Base for Dividend Reliability

Dividend stability depends on a company’s ability to produce steady profits. JNJ’s profitability measures support its dividend appeal:

• Solid Margins: The company has a 25% profit margin (top 6% of the industry) and a 67.98% gross margin, showing pricing strength and cost control.
• High Returns: JNJ’s 28.88% return on equity (top 5% of peers) and 13.57% return on invested capital (top 10%) indicate efficient use of capital.
• Cash Flow: Positive operating cash flow in each of the last five years gives enough liquidity to support dividends.

These reasons explain the stock’s 8/10 ChartMill Profitability Rating, a main filter in the screen to confirm dividends are supported by earnings strength.

Financial Condition: Mixed but with Small Issues

While JNJ’s 5/10 Health Rating meets the screen’s minimum requirement, it shows a varied situation:

• Solvency: A Debt-to-Equity ratio of 0.61 and a solid Altman-Z score of 4.21 (better than 77% of peers) suggest low bankruptcy risk.
• Liquidity Gaps: A current ratio of 1.01 and quick ratio of 0.76 are below industry norms, pointing to tighter short-term liquidity. However, strong free cash flow (debt/FCF of 2.74 years) lessens this concern.

The screening method sets a moderate health standard (5/10) to avoid highly indebted firms while recognizing that even established companies like JNJ may have sector-specific balance sheet details.

Valuation and Growth: Potential for Steady Gains

JNJ trades at a P/E of 17.1, lower than the industry average (22.75) and much cheaper than the S&P 500 (27.24). Analysts predict modest 5.89% annual EPS growth, fitting its defensive nature. While growth isn’t rapid, the mix of dividend income and fair valuation provides stability—a trait of dividend aristocrats.

Conclusion

Johnson & Johnson’s combination of dividend reliability, profitability, and acceptable financial condition makes it a top choice for income investors. Its screening results—especially the 7/10 Dividend Rating and 8/10 Profitability Rating—show a business designed to provide steady payouts.

For investors looking for more high-quality dividend options, review the complete results of the Best Dividend Stocks screen, which lists similarly screened candidates.

Disclaimer: This analysis is not investment advice. Always do your own research or consult a financial advisor before making investment decisions.