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United Investment Limited - Invest in this Dividend King for the future
Consistent singles and doubles in investing with well-established firms is perhaps the key to long-term success. Sure, hitting a home run with a less established firm is more exhilarating.
Johnson & Johnson (JNJ) is one of the world's oldest pharmaceutical businesses, having been founded in 1886. JNJ has raised its dividend for 60 straight years as a well-established company. This elevates the corporation to the status of Dividend King, having the longest dividend increase record in healthcare.
However, don't misinterpret JNJ's age and strong dividend growth record as a sign of a stagnating company whose best days are behind it. This year and beyond, the stock seems to be a buy for value and income investors. To expand on this point, let's look at JNJ's fundamentals and value.
JNJ reported total sales of $23.8 billion for the third quarter ending September 30, up 1.9% year on year. On the surface, this appears to be lacklustre sales growth.
However, the company's worldwide revenues ($11.3 billion) were hit by a 12.6% foreign currency translation headwind as a result of the US dollar's sustained rise. Accounting for this component, JNJ's adjusted operating revenues increased 8.2% year on year.
The pharmaceutical and MedTech businesses were the company's drivers, with revenues increasing by 2.6% and 2.1%, respectively, during the quarter. The consumer health division, which will be split off into a separate company in 2023, trailed behind, with sales down 0.4% year on year.
The pharmaceutical segment's revenues increased to $13.2 billion in the third quarter. This was due to JNJ's immunology medication Tremfya and cancer treatments Darzalex and Erleada seeing double-digit sales increases. Increased sales in the company's vision, trauma and general surgery categories contributed to the MedTech segment's $6.8 billion in revenue during the quarter.
JNJ reported $2.55 in non-GAAP (adjusted) diluted profits per share (EPS) in the third quarter, a 1.9% decrease from the previous year. Inflationary prices and supply chain concerns resulted in a nearly 140-basis-point drop in the company's non-GAAP net margin to 28.5% for the quarter. This drop in profitability was neither mitigated by a higher revenue base or a 0.5% decrease in average diluted share count to 2.7 billion during the quarter. This is how JNJ's adjusted diluted EPS increase in the quarter was lower than its total sales growth.
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