Both Abbott and J&J are heavily invested in medical devices as well, and while this industry provides plenty of stability going forward — a key for dividend investors — each company’s segment faces challenges. Johnson & Johnson’s medical device division has thrived on the back of its $21 billion acquisition of orthopedics powerhouse Synthes last year, but outside of the orthopedics realm, J&J’s device segment has suffered through pricing pressures, tough competition, and a lackluster European market just like every other firm in the industry. However, the segment should be just fine in the long-term future due to obesity and aging trends in the orthopedics industry’s favor — and orthopedics make up the biggest portion of J&J’s device division by sales.
Abbott’s facing a different game in medical devices, as the company’s Xience drug-eluting stent leads the market. However, Abbott’s reliance on cardiovascular device sales puts the company squarely in the midst of a sector that’s struggled mightily recently. As long as the Xience series continues to do well and Abbott’s next-generation stent, the Absorb, can succeed in the U.S., this company’s device sales should be fine in the long-term, even with the medical device sector’s slump in recent quarters and Abbott’s downbeat second quarter this year.
Even with the positives, both companies have drawbacks. Johnson & Johnson’s consumer products division, which makes up more than a fifth of the company’s total sales, has seen revenue slump both domestically and internationally, losing nearly 3% last year. Meanwhile, Abbott’s generic drug division, its second-leading seller behind nutritionals, saw sales fall 4% last year, with its biggest revenue generator — drug Clarithromycin — lose 9%. If Abbott can’t turn that number around, it’ll need every dollar in sales growth from its nutritional department to stay on track.
Two can’t-miss picks
In a battle between two top-notch diversified health care stocks, the truth is that both make extremely compelling cases to form a core part of any dividend investor’s portfolio. Johnson & Johnson’s higher yield and strong pharmaceuticals division will keep its stock surging for years to come, particularly as Remicade remains one of the industry’s top-selling drugs and Invokana and Zytiga get their legs under them as nascent blockbusters. Meanwhile, Abbott’s history of dividend increases and emerging markets power in its nutritionals segment bode well for this stock in the future.
I’ll give Johnson & Johnson the nod by a hair because of this company’s thriving success in pharmaceuticals and strong orthopedics device segment, along with its higher dividend yield. All in all, J&J and Abbott are two stocks that dividend investors can’t go wrong in the long run by picking up.
The article Better Dividend: Johnson & Johnson vs. Abbott Labs originally appeared on Fool.com is written by Dan Carroll.
Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson.
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