Johnson & Johnson(NYSE: JNJ) has a lot going for it in the eyes of investors. The company's pharmaceutical sales are growing due to recently launched blockbuster drugs. Lately, its medical technology business is growing faster than pharmaceutical sales, thanks to a rush of seniors who need to replace their knees and hips.
Warren Buffett doesn't seem too thrilled with the stock, even though the company has a pair of business segments that keep moving in the right direction. Last year, Berkshire Hathaway, the holding company Buffett's managed since 1965, closed out a years-old Johnson & Johnson position.
Is J&J still a good dividend stock to buy? Let's take a closer look at its recent performance to find out.
Reasons to buy Johnson & Johnson stock now
Johnson & Johnson is famous for consumer health brands, many of which are more than a century old. Following the spinoff of Kenvue last year, though, it no longer markets consumer goods. These days, J&J has just two operating segments that are both growing much faster than its old consumer health division used to.
Last year, J&J reported pharmaceutical revenue that rose 7.2% year over year if you ignore rapidly evaporating sales of its COVID-19 vaccine. During the COVID-19 emergency, seniors avoided doctor visits that culminated in surgery (and the sale of J&J's medical devices), but not any longer. The company reported medical technology revenue that soared 12.4% year over year, overlooking the effects of currency exchange.
J&J raised its dividend payout by 32.2% over the past five years. Without stagnating sales of consumer health brands, the company's dividend growth rate could improve significantly. In 2024, management expects adjusted earnings per share to rise 7.3% at the midpoint of its guided range.
Oncology sales could push J&J's growth rate into a higher gear. In January, the company sent an application to the Food and Drug Administration (FDA) that could expand the patient population of its blood cancer drug darzalex to include newly diagnosed multiple myeloma patients. Adding darzalex to standard care reduced patients' risk of disease progression or death by 58% during a clinical trial.
Also in January, the FDA granted full approval to Balversa, a targeted treatment for a genetically defined group of bladder cancer patients with disease that recurred or failed to respond to initial treatment. In the Thor trial, Balversi reduced these patients' risk of death by 36%, compared to standard chemotherapy.
Reasons to remain cautious
Shares of Warren Buffett's holding company Berkshire Hathaway have risen about 3,986,240% since he took the helm in 1965. With such a remarkable track record, investors everywhere pay close attention to Berkshire's stock-trading activity.
In the third quarter of 2023, Berkshire's disclosures show it closed out its J&J position by selling about 327,000 shares. Before assuming the worst, it's important to realize Buffett likes to invest in businesses he fully understands.
The pharmaceutical and medtech industries are complex areas that Berkshire tends to avoid. With this in mind, we can assume it was probably the Kenvue spin-off that caused Berkshire to exit its J&J investment, not problems with the operating segments that remain.
Image source: Getty Images.
A buy now?
Lately, J&J stock has been trading for 14.8x the midpoint of management's adjusted earnings expectation for 2024. This price is more than fair for a company that grew adjusted earnings by a double-digit percentage last year and could continue reporting gains at a high single-digit percentage in the years ahead.
Shares of J&J offer a 3% dividend yield at recent prices. There are higher-yielding pharma stocks that you could buy now, but none of those businesses are complimented by a large medical technology segment. With drugs and devices to drive its dividend higher, this stock looks like a smart one for income-seeking investors to buy now and hold for the long run.
Should you invest $1,000 in Johnson & Johnson right now?
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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Kenvue. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
