NEW YORK (TheStreet) -- Consider this startling statement: "Our consistent performance has enabled us to deliver an exceptional track record of growth that few, if any, companies can claim: 31 consecutive years of adjusted earnings increases and 53 consecutive years of dividend increases."-- Johnson & Johnson's investor relations department
Johnson & Johnson (JNJ) - Get Johnson & Johnson (JNJ) Report may have the best record of stability of any business in history: over three decades of consecutive earnings increases. And there are only 16 businesses with 50+ years of consecutive dividend increases.
Johnson & Johnson was founded in 1886. The company is now the largest health care business in the world. The company has a market cap of $276.7 billion, generates over $70 billion a year in sales, and $16 billion a year in profits. That's enough to buy a well known business like Expedia (EXPE) - Get Expedia Group, Inc. Report in its entirety, every year.
There is more to Johnson & Johnson's stability than its decades of earnings and dividend growth. The company also has an exceptionally low stock price standard deviation.
Johnson & Johnson's 10 year stock price standard deviation is just 16.2%. This is the lowest stock price standard deviation of any large cap stock I've analyzed.
To give an idea of just how low this is, consider Southern Company (SO) - Get Southern Company Report and Consolidated Edison (ED) - Get Consolidated Edison, Inc. Report. Both are high quality utilities with long dividend histories. The utility business is often considered the most stable in the world. These two businesses have stock price standard deviations over the last decade of 17.8% and 16.7% respectively. Johnson & Johnson's stock price is actually less volatile than even these high-quality utility businesses.
You may be wondering "how is Johnson & Johnson so stable." The answer lies in its wide diversification within the healthcare industry.
Business Overview and Competitive Advantages
Johnson & Johnson operates in three segments:
- Consumer: $14.5 billion in 2014 sales
- Pharmaceuticals: $32.3 billion in 2014 sales
- Medical Devices: $27.5 billion in 2014 sales
Johnson & Johnson's different segments all have competitive advantages that support high margins and continued growth.
All three segments benefit from size and scale competitive advantages. The company has excellent connections with suppliers and governments around the world. The company can keep input costs low by buying in far larger quantities than competitors can.
The medical devices and pharmaceutical segments benefit from a research and development competitive advantage. Johnson & Johnson's large size gives it a bigger research and development budget than its peers. The company spent $8.5 billion on research in development in 2015.
The consumer segment benefits from a brand-based competitive advantage. Well known brands owned by Johnson & Johnson include: Tylenol, Zyrtec, Band-Aid, Neutrogena, Listerine, Motrin, and Aveeno (among others). In 2014, Johnson & Johnson spent $2.6 billion on advertising.
Growth and Total Returns
Johnson & Johnson grew earnings-per-share at 6.1% a year over the last decade.
Recent results are in line with historical growth. Johnson & Johnson posted 6.7% constant-currency adjusted earnings-per-share growth in its most recent quarter. Would you expect anything less than consistency from Johnson & Johnson?
Johnson & Johnson currently has a dividend yield of 3%. The company will likely continue growing earnings-per-share at around 6% a year. Johnson & Johnson's dividend yield and expected growth gives investors an expected total return of around 9% a year.
The Bottom Line
Johnson & Johnson currently trades for an adjusted price-to-earnings ratio of 16.6. The S&P 500 has a price-to-earnings ratio of 21.0. Johnson & Johnson appears somewhat undervalued at current prices.
The S&P 500 has averaged has a compound total returns of around 9% a year over the long-run. Johnson & Johnson offers investors similar returns, but with less volatility.
Johnson & Johnson's combination of a 3% dividend yield, 9% expected total returns, and extremely low stock price volatility give it a high rank using The 8 Rules of Dividend Investing.
This article is commentary by an independent contributor. At the time of publication, the author held No positions in the stocks mentioned.