In 1886, Johnson & Johnson (JNJ) was launched to produce the world’s first mass-produced sterile surgical supplies, observes Ingrid Hendershot, a value-oriented manager and editor of Hendershot Investments.

Johnson & Johnson now sells everything from Band-Aids to hip replacements to pharmaceuticals and boasts more than 265 operating companies employing 132,200 people in virtually every country across the globe.

With a century-plus history of leading in times of great challenge, JNJ is leveraging its scientific expertise, operational scale and financial strength in its effort to advance the work on its lead COVID-19 vaccine candidate.

A vaccine is critical to eradicating the pandemic. Johnson & Johnson is accelerating its R&D and manufacturing to produce one billion doses of the vaccine for emergency use authorization beginning in the first quarter of 2021 on a not-for-profit basis.

Johnson & Johnson’s after-tax profit margins averaged 16.8% during the past five years despite the impact of tax reform on reported results in 2017. Over the same period, return on shareholders’ equity averaged a profitable 19.6%.

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 $78 billion to shareholders during the past five years through share repurchases of $33 billion and dividends of $45 billion.

The company’s capital allocation strategy is to first invest in the company’s organic growth business needs and then use free cash flow to increase its dividend. Johnson & Johnson uses excess cash for share repurchases and mergers and acquisitions to bolster its portfolio and enhance its pipeline.

The dividend currently yields a healthy 2.8%. On 3/29/20, Johnson & Johnson held $18 billion in cash and investments and $25 billion in debt on its AAA-rated balance sheet, one of only two U.S.-based companies remaining with that top credit rating.

JNJ expects full year sales in 2020 to decline 2% to 5.5% to a range of $77.5 billion to $80.5 billion. Adjusted EPS is expected to decline 9% to 13.6% to a range of $7.50-$7.90 due to the COVID-19 pandemic impact.

Long-term investors should consider buying Johnson & Johnson, a high-quality market leader with profitable operations, strong cash flows, a healthy balance sheet and growing dividends. Buy.

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