Since 1886, Johnson & Johnson (JNJ) has been guided by a value system that prioritizes people ahead of profits, suggests Ingrid Hendershot, a value investor, money manager and editor of Hendershot Investment.
Johnson & Johnson sells everything from Band-Aids to hip replacements to pharmaceuticals and boasts more than 260 operating companies employing 134,000 people in virtually every country across the globe.
It offers the world's most extensive portfolio of orthopedic products and services in joint reconstruction, traumatology, spinal surgery, sports medicine, neurosurgery, facial and cranial surgery, surgical power tools and biomaterials.
The consumer segment offers products and over-the-counter medicines for skin, mouth, baby care and feminine hygiene with household names including Neutrogena, Aveeno, Band-Aid, Neosporin, Motrin, Tylenol, Benadryl, Listerine and Rolaids.
Johnson & Johnson’s after-tax profit margins averaged 21.2% during the past five years. Over the same period, return on shareholders’ equity averaged a stellar 22.5%. This exceptional profitability generated robust free cash flow which averaged more than 100% of earnings over the past five years, a sign of high-quality earnings.
Strong free cash flow has enabled Johnson & Johnson to invest in acquisitions, innovation and strategic partnerships to accelerate growth in each of its business segments while returning more than $72 billion to shareholders during the past five years through share repurchases of $31 billion and dividends of $41 billion.
In 2018, the company increased its dividend by 7.1%, marking the 56th consecutive year of annual dividend increases with the dividend currently yielding a healthy 2.7%. On 6/30/18, Johnson & Johnson held $18.1 billion in cash and investments and $29 billion in debt on its AAA-rated balance sheet, one of only two U.S.-based companies remaining with that top rating.
Long-term investors should consider buying Johnson & Johnson, a high quality market leader with profitable operations and a healthy balance sheet selling at a reasonable valuation.
