We recently published a list of S&P 500 Dividend Aristocrats List: Sorted By Hedge Fund Sentiment. In this article, we are going to take a look at where Johnson & Johnson (NYSE:JNJ) stands against the other S&P 500 dividend aristocrats.
The appeal of dividend growth growth stocks is unmatched. For those considering investing in dividend stocks, growth typically outweighs yield due to the consistent returns they have delivered over the years. Within dividend growth strategies, the dividend aristocrats stand out. Of the approximately 6,000 stocks listed on the NYSE and NASDAQ, only 67 companies earn the title of dividend aristocrats. These companies have consistently increased their dividend payouts for a minimum of 25 consecutive years. They are part of the broader market and are tracked by the Dividend Aristocrat Index.
Also read: 10 Best Dividend-Paying Stocks Under $50
Companies that regularly increase their dividends typically show strong financial health and stability, indicating their consistent profitability. A report by Fortune highlighted that, although it has lagged behind its benchmark, the Dividend Aristocrat Index has surpassed nearly all US active managers over the past decade. Rupert Watts, the head of factors and dividend indices at S&P Dow Jones Indices, discussed dividend growth strategies with the global media organization. Here is what the analyst said:
“Raising your dividend for 25 plus years is no easy feat. These are high-quality companies.”
Dividend aristocrats have delivered impressive returns, surpassing other asset classes. Since the index’s inception in 2005 through September 2023, the dividend aristocrats index has provided a total return of 10.35%, outpacing the broader market’s return of 9.54% for the same period. These stocks are celebrated not only for their dividend growth and steady equity gains but also for their lower volatility. During this timeframe, dividend aristocrats exhibited a volatility level of 15.35%, compared to the market’s slightly higher 16.31%. This indicates that dividend aristocrats tend to have more stable price movements. Their consistent dividend increases over 25 years or more demonstrate their ability to reward shareholders even during tough times, such as the 2007 financial crisis and the 2020 pandemic.
The debate between high yields and dividend growth continues. As of August 19, the High Dividend ETF, which tracks high-yielding companies in the broader market, offers a dividend yield of 4.18%. This yield would have been quite attractive to investors in the past. However, this year the ETF has only returned 4.8%, compared to the market’s 18% return. According to FactSet, investors have withdrawn over $1.1 billion from the fund, which is more than 15% of its $6 billion in assets. This indicates that investors tend to prefer dividend growth over high yields, as high yields are often seen as a sign of financial difficulties. In this article, we will take a look at some of the best dividend aristocrat stocks according to hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A smiling baby with an array of baby care products in the foreground.
Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 80
Johnson & Johnson (NYSE:JNJ) ranks fourth on our list of the best dividend aristocrat stocks. The American pharmaceutical industry company specializes in a wide range of biotech and medical products and services. A recent report by S&P Global highlighted Johnson & Johnson (NYSE:JNJ) as one of the most resilient pharmaceutical companies, noting its low business and financial risks compared to other major drugmakers. The report praises the company for its substantial scale and its portfolio of blockbuster drugs. It emphasizes the importance of competitive advantages derived from sustainable innovations, which can lead to premium pricing and product differentiation. This assessment is based on factors such as the company’s investment in R&D, its R&D track record, the strength of its pipeline and marketing, and its ability to maintain long-term revenue growth and strong margins, even as products lose exclusivity.
In the second quarter of 2024, Johnson & Johnson (NYSE:JNJ) reported revenue of $22.4 billion, which showed a 4.3% growth from the same period last year. In the first half of 2024, medical technology sales increased by 3.3%, or 5.4% when adjusted for constant currency rates. The company’s management has recently lowered its earnings forecast for 2024, reflecting the impact of recent acquisitions, including Shockwave. Shockwave is the sole producer of intravenous lithotripsy devices that are approved for softening calcified blood vessels.
Johnson & Johnson (NYSE:JNJ) is a reliable investment for income investors. The company offers a quarterly dividend of $1.24 per share, having raised it by 4% in April this year. Through this increase, the company stretched its dividend growth streak to 62 years. The stock supports a dividend yield of 3.11%, as of August 19.
As of the close of the June quarter of 2024, 80 hedge funds in Insider Monkey’s database held stakes in Johnson & Johnson (NYSE:JNJ), which remained unchanged from the previous quarter. These stakes have a total value of nearly $4.7 billion. Ken Fisher’s Fisher Asset Management held the largest stake in the company in Q2.
Overall JNJ ranks 4th on our list of S&P 500 dividend aristocrats. While we acknowledge the potential of JNJ as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than JNJ but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.