Recent talk of the highest U.S. annual inflation rate since the 1970s has many investors spooked, and these worries are not solely based in the United States. A global inflation surge is upon us, which is why it’s more important than ever to consider stocks like Johnson & Johnson (NASDAQ:JNJ).
Johnson & Johnson is the “world’s largest and most broadly-based healthcare company” that focuses on three core business segments — consumer health, medical devices, and pharmaceuticals. Some of the company’s most best known products include Tylenol, Band-Aid bandages, Neutrogena skin products, Benadryl, and Johnson’s baby products.
Sure, there are plenty of healthcare companies to consider, many of which had a strong year, but few boast a AAA credit rating. Johnson & Johnson’s balance sheet is pristine, giving investors plenty of confidence.
In 2021, Johnson & Johnson’s interest coverage ratio was 101x. The company’s earnings before interest and taxes would need to essentially hit zero before it could no longer cover its interest payments. That is extremely unlikely, considering Johnson & Johnson has made it through recessions, inflation periods, wars, and the recent pandemic.
JNJ Is A Dividend King
When it comes to dividend stocks, few are as reliable as JNJ. Johnson & Johnson is a Dividend King, which means the company has increased its dividend payouts consistently for at least 50 years. Fewer than 40 stocks hold this title. In this case, Johnson & Johnson has been in business for over 130 years, raising its dividend for nearly six decades in a row — the longest streak in all of healthcare.
Having one of the longest and most impressive histories of any dividend growth stock, JNJ is worthy of strong consideration. The company offers a 2.5% annual dividend yield, equating to a quarterly dividend amount of 1.06 USD. So, it’s no surprise that Warren Buffett holds over 327,000 JNJ shares — although the “Oracle of Omaha” was quite critical of the company in 2011, dumping a significant amount of shares in 2012. The company did have some serious manufacturing issues but has continually grown in the intervening period.
Over the past five years, JNJ stock has increased by more than 34%, and over the past year, by nearly 7.7%.
The year 2021 was an excellent year for JNJ, showing a lot of promise for the future. Johnson & Johnson reported $93.78 billion in sales, up 13.6% from 2020. This impressive figure was because it grew all three of its business segments. The bulk of sales growth (58.2%) from 2021 was from the pharmaceutical segment, which was linked to its COVID-19 vaccine. This segment brought in $52.08 billion last year.
Compared to 2020, the company saw a 43.8% growth rate for its blood cancer drug, Darzalex, which contributed $6.02 billion; and an 18.3% growth rate for its immunology drug Stelara, resulting in $9.13 billion in sales.
The company currently has a solid drug portfolio and a pipeline of drugs in clinical trials, which are expected to fuel future growth.
How JNJ Protects Against Inflation
With so many concerns circulating around rising inflation rates, it’s natural to want to safeguard your portfolio — but how?
Instead of waiting for inflation to taper or decline, you can invest in companies that are likely to withstand inflation. Johnson & Johnson’s solid dividend history is one reason to invest, as well as the company’s resilience in an inflationary environment. Johnson & Johnson offers products that people use daily, regardless of what’s going on with the economy, stock market, or inflation rates, so demand is stable and it has pricing power to pass on costs to consumers if necessary.
On top of that, Johnson & Johnson makes life-saving drugs. The demand for these drugs is also not going anywhere. The bottom line is the company has a well-known brand, loyal customer base, and pricing power to withstand an inflationary environment. In short, JNJ stock is a good investment if you’re currently restructuring your portfolio with rising inflation rates in mind.
Buy Johnson & Johnson’s Stock at a Discount
Based on its history, Johnson & Johnson is a world-class business, yet its current valuation suggests further upside — which means you can potentially grab JNJ stock on sale. The company’s price-to-earnings ratio of 15.9 is well below the S&P 500’s P/E ratio of 19.8. In the current environment, it arguably deserves to be trading at a premium to the consensus.
Based on Johnson & Johnson’s recent earnings, metrics, future financial forecasts, and reliable dividend yield, this stock is a buy.