Procter & Gamble (PG +0.72%) runs a great consumer staples business, and it is a Dividend King. But there’s a nuance to consider when you look at the stock. And that not-so-small detail is why Johnson & Johnson (JNJ +1.26%) could be one of the best Dividend Kings to buy today. Here’s what you need to know.
There is a lot of variety on the Dividend King list
To become a Dividend King, a company must increase its dividend annually for at least 50 consecutive years. That’s an incredible feat. A company can’t produce that kind of consistency by accident. It requires a strong business model that is executed well in both good times and bad times. To be fair, many have done just that, with the current list including more than 50 companies.
Image source: Getty Images.
There are many types of businesses on the list, including industrials, utilities, financials, consumer staples, and healthcare, among others. That said, each business has its own dynamics. For example, industrial stocks have a history of being cyclical. Given today’s market uncertainty, with some on Wall Street worried that inflation could lead to a recession, long-term investors should probably think carefully before buying a stock just because it is a Dividend King.
Essentially, you may want to focus on companies with products that sell well regardless of the economic environment. The go-to is often consumer staples companies, like Procter & Gamble. You aren’t going to stop buying deodorant or soap. The company is one of the world’s largest consumer staples companies, and it is generally considered an industry leader. The company enjoys strong brand loyalty, but consumers can still trade down.
Today’s Change
(0.72%) $1.04
Current Price
$144.44
Key Data Points
Market Cap
$336B
Day’s Range
$143.53 – $144.64
52wk Range
$137.62 – $170.99
Volume
4.6M
Avg Vol
9.6M
Gross Margin
50.88%
Dividend Yield
2.95%
Johnson & Johnson could be a better option
It wouldn’t be a mistake to buy P&G, noting that the stock appears reasonably valued right now and offers an attractive 3% dividend yield. However, a healthcare stock like Johnson & Johnson could be the best choice if you are worried about the economy.
Like P&G, J&J’s products aren’t optional. If you need healthcare, you are likely to buy the products and services you need. Not doing so could have dire consequences. However, J&J’s business benefits from patent protections, notably in its pharmaceutical business. The medical device products it sells have material clout with healthcare providers and aren’t likely to be easily displaced either. Meanwhile, J&J invests heavily in research and development to help ensure it remains an industry leader.
Today’s Change
(1.26%) $2.92
Current Price
$234.65
Key Data Points
Market Cap
$564B
Day’s Range
$232.54 – $235.45
52wk Range
$149.04 – $251.71
Volume
182K
Avg Vol
7.8M
Gross Margin
67.96%
Dividend Yield
2.22%
This isn’t exactly a slam dunk. Johnson & Johnson’s stock isn’t nearly as attractively valued as P&G. For example, P&G’s price-to-sales, price-to-earnings, and price-to-book ratios are all below their five-year averages right now. All of those valuation metrics are above J&J’s five-year averages, which means you are paying a premium for a good business. That may not be as upsetting as you think when you consider that J&J’s dividend has grown at a 5.7% annualized rate over the past decade, while P&G’s dividend only grew at 2.4%. J&J’s yield is roughly twice the broader market’s, at a bit over 2.2%.
Today’s Change
(-0.42%) $-0.37
Current Price
$87.40
Key Data Points
Market Cap
$152B
Day’s Range
$87.06 – $88.81
52wk Range
$81.97 – $139.06
Volume
316.3K
Avg Vol
12.2M
Gross Margin
52.84%
Dividend Yield
2.79%
Of course, you could also switch gears and buy another healthcare company that’s a Dividend King, such as drug maker Abbott (ABT 0.42%) or medical device company BD (BDX +0.94%). Neither would be a bad choice, but you get diversification across pharmaceuticals and medical devices in one investment by buying Johnson & Johnson. That gives J&J a stronger foundation to deal with adversity.
Johnson & Johnson isn’t perfect, but it is very good
It could be a smart move to pay a premium for a Dividend King with a diversified, resilient business. That’s particularly true given today’s market and economic uncertainties. To be fair, J&J is facing some legal headwinds related to talcum powder it once produced, which may worry some investors. But management’s ability to address that issue and continue to execute well across its diversified operations could also be viewed as an additional testament to the company’s fundamental strength and ability to weather adversity.
