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An Investor's Choice: J&J or Baxter International?

NEW YORK ( TheStreet) -- Recently I read an article about the epitome of great dividend-paying companies, and it won't surprise many that it showcased Johnson & Johnson (JNJ - Get Report).

What may surprise you is what I was reading was written back in the middle of January 2013, and the shares of JNJ were trading around $72 at that point. It referenced the fact that back then the dividend yield-to-price was nearly 3.4%.

As of Thursday, shares of JNJ hit a new 52-week high of $84.29, which drops to yield-to-price down to 2.9%. Perhaps that's why it ended the trading session lower at $83.18. Some investors are a bit queasy about getting less than a 3% dividend on what some call "The King of Dividend Growers."

Let's take a look at a one-year chart that illustrates where we have been and where we are with JNJ's stock price. This doesn't mean that JNJ isn't going to move up to $100 someday but earnings, revenue per share and the dividend itself will most likely need to go higher as well. JNJ Chart JNJ data by YCharts

It's clear from the chart above that the share price has followed the trailing 12-month revenue per share growth. As long as that revenue trajectory continues to go higher, and especially if the EPS moves in the same direction, JNJ should do just fine in the long run.

This is founded on the historical fact that this diversified purveyor of all sorts of healthcare products has raised its dividend for 50 consecutive years. Over the past 10 years the average annual increase of its dividend payout has been close to 12% per year.

Yet, we should also be prudent and note that as the dividend payout has increased so has the payout ratio. As of March 31, that payout ratio is now at 62%. For comparison one of its smaller competitors, Baxter International (BAX - Get Report), with its 2.6% current yield-to-price, has a payout ratio of 38%.

Before the U.S. markets opened on Thursday BAX announced that it achieved its first-quarter earnings and revenue expectations. The company also triumphantly confirmed its full-year guidance.

Let's focus for a minute on what BAX does to drive sales growth and EPS numbers.

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