Johnson & Johnson Pays a Healthy Dividend and Prescribes Strong Value

Johnson & Johnson stock is expected to keep delivering healthy stock gains.
By Richard Saintvilus ,

Shares of health care giant Johnson & Johnson (JNJ) - Get Report are scheduled to trade ex-dividend Friday, Nov. 20. To qualify for a dividend check, investors must own shares of the company on or before its ex-dividend date. That's the last day Johnson & Johnson will finalize its roster of shareholders to whom it will send dividend checks.

The strategy of buying stocks for the sole purpose of collecting the announced quarterly dividend and then selling the stock within days after the dividend cash payment has been paid can be lucrative. It requires excellent timing, however. Johnson & Johnson, which pays a 75-cent quarterly dividend, yielding 3.00% annually, is scheduled pay its dividend on Tuesday, Dec. 8 to shareholders of record as of Tuesday, Nov. 4.

This is a quick turnaround, amounting to a waiting period of only two weeks from the record date. Not willing to wait? Consider, in the meantime, shares of Johnson & Johnson -- trading at a P/E of 19 -- are cheap, compared to a P/E of 21 S&P 500 (SPX) index. And when compared to healthcare peers like Pfizer (PFE) - Get Report (P/E of 25) and consumer staples conglomerate Colgate-Palmolive (CL) - Get Report (P/E of 24), the value in JNJ stock -- down 3% in 2015 -- stands out even more.

If JNJ traded on par with the S&P 500, its stock would be valued today at around $134, not $101. And even based on 2016 consensus estimates of $6.42 a share, which puts its forward P/E at 15, JNJ stock undervalued by about two points below the forward P/E of the S&P 500. It's true, the implied 4% year-over-year earnings growth for 2016 is nothing to write home about, but with JNJ having beaten the average analysts earnings-per-share estimate in eighteen straight quarters, it's reasonable to expect it will exceed these estimates in 2016.

In the meantime, Johnson & Johnson, which has raised its quarterly dividend more than 50% since 2010, will continue to reward investors with a strong execution and a safe yield, which has climbed for 52 years in a row. Add in the implied 10% stock gains from its average analyst 12-month price target of $109, and JNJ is a good stock for any portfolio.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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