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), 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.
Baxter agreed to buy Gambro back in December for $2.76 billion, and it cost around $29 million to transact the deal during the first quarter. Gambro has annual sales of around $1.6 billion and BAX hopes to seal the deal by the end of the second quarter of 2013. BAX's revenue in the first quarter increased 2% to $3.45 billion from $3.39 billion in the year-ago quarter. This figure is not reflected in the chart below that looks at BAX from a one-year perspective with the same metrics applied to JNJ at the beginning of this article. BAX data by YCharts
Although first-quarter results aren't shown in the chart above, after the exclusion of the one-time items the EPS was 4% higher than the year ago quarter and as mentioned above the first-quarter revenue per share (trailing 12-month) did increase 2%. Shares of BAX closed down 1.89% on Thursday at $68.90.