China is still considered the largest emerging market, and is also expected to grow pharmaceutical sales fastest. The country is expecting 15% to 18% pharmaceutical sales growth over the next several years. Both Johnson & Johnson and Abbott Laboratories are attempting to capture this strong growth trend.
Based on my 8 rules of dividend investing (more on that below), Abbott Laboratories has the advantage, but Johnson & Johnson is a fantastic company as well. Both businesses make excellent investments for long-term oriented shareholders seeking rising income.
Johnson & Johnson is the largest publicly traded health care business in the world with a market cap of $294 billion. Abbott Laboratories is a giant multinational corporation in its own right. The company has a market cap of about $64 billion.
Abbott Laboratories generates about 60% of its pharmaceutical revenue in emerging markets today and is expected to generate more than $2.8 billion in pharmaceutical sales in emerging markets this year. By 2016, it expects to generate 75% of pharmaceutical revenue from emerging markets. Abbott Laboratories is most successful in India, where it has the most sales of any pharmaceutical company.
Johnson & Johnson generates about 20% ($1.7 billion) of its $8.5 billion in pharmaceutical sales in emerging markets. The company's overall pharmaceutical operation is larger than Abbott Laboratories, but Abbott generates more sales in emerging markets. Johnson & Johnson generates the bulk of its pharmaceutical revenue in the U.S. and developed markets, while Abbott Laboratories generates more pharmaceutical revenue from emerging markets than anywhere else.
Abbott Laboratories is specifically focused on emerging market growth, and has positioned itself to better benefit from booming emerging market pharmaceutical sales.
Johnson & Johnson vs. Abbott Laboratories: Dividend Fundamentals
Here's how these two giant health care companies compare to each other using Ben Reynold's 8 Rules of Dividend Investing, which rank high quality dividend stocks using fundamental data.
Johnson & Johnson has the longer dividend history, paying increasing dividends for 52 consecutive years vs. 42 consecutive years for Abbott Laboratories. Both companies' long history of consistent dividend increases shows their commitment to rewarding shareholders.
Johnson & Johnson has a dividend yield of 2.7%, vs. 2.1% for Abbott Laboratories. Johnson & Johnson has the advantage in this category as well.
Abbott Laboratories has a slightly lower payout ratio of 40% compared to Johnson & Johnson, which has a payout ratio of 47%. Lower payout ratios mean a company has more room to increase its dividends faster than overall company growth.
Abbott Laboratories has grown revenue per share by 8.5% per year over the last 10 years, vs. only 3.7% per year for Johnson & Johnson. Abbott Laboratories has proven it can grow revenue per share significantly faster than Johnson & Johnson.
Johnson & Johnson has an extremely low standard deviation of 16% over the last 10 years, while Abbott Laboratories has a standard deviation of 20% over the same time period. Johnson & Johnson has the advantage in this category.
And the Winner Is...
Abbott Laboratories outranks Johnson & Johnson using the 8 Rules of Dividend Investing due to its significantly higher growth rate and lower payout ratio. Further, the company has better positioned itself to take advantage of the booming pharmaceutical industry in emerging markets and currently derives 60% of its pharmaceutical revenue from emerging markets.
Nevertheless, as I stated above, both companies make excellent investments for long-term oriented shareholders seeking rising income.
- Despite its growing revenue, the company underperformed as compared with the industry average of 7.7%. Since the same quarter one year prior, revenues slightly increased by 1.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- The current debt-to-equity ratio, 0.31, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.13, which illustrates the ability to avoid short-term cash problems.
- Net operating cash flow has increased to $900.00 million or 25.60% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -20.20%.
- ABBOTT LABORATORIES reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ABBOTT LABORATORIES increased its bottom line by earning $1.50 versus $0.36 in the prior year. This year, the market expects an improvement in earnings ($2.26 versus $1.50).
- The gross profit margin for ABBOTT LABORATORIES is rather high; currently it is at 59.16%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 8.39% trails the industry average.
- You can view the full analysis from the report here: ABT Ratings Report