Johnson & Johnson (JNJ): What You Should Know

4. Dividend payouts are rising fast
Johnson & Johnson (NYSE:JNJ)‘s earnings-per-share growth has been dim. In the 12 months ended March, the company earned less profit per share than it did five years ago (although normalized EPS have grown). At the same time, “the Company increased its dividend in 2012 for the 50th consecutive year” in 2012. The result has been a substantial rise in the dividend payout ratio:

I like dividends. But if J&J had a long-standing policy of paying out 35%-40% of its earnings as dividends, I don’t see why that should change, save for a dramatic decline in investment opportunities. Something will likely give in the coming years — ideally earnings growing faster than payouts.

5. There’s only one way to run a company this large: decentralization of subsidiaries
A large portion of big, multi-national corporations that operate in a variety of businesses crumble under their own weight. There comes a point where the only way to grow the company is to venture into businesses the CEO isn’t skilled in. Empire-building takes over, returns fall, and the company finally breaks itself up. Same story over and over again for conglomerates.

Johnson & Johnson (NYSE:JNJ) is different for one important reason: It emphasizes decentralization of operations:

The Company’s structure is based on the principle of decentralized management. The Executive Committee of Johnson & Johnson is the principal management group responsible for the strategic operations and allocation of the resources of the Company. This Committee oversees and coordinates the activities of the Consumer, Pharmaceutical and Medical Devices and Diagnostics business segments. In line with the principle of decentralized management, senior management groups at U.S. and international operating companies are each responsible for their own strategic plans, as well as the day-to-day operations of those companies, and each subsidiary within the business segments is, with some exceptions, managed by citizens of the country where it is located.

The article 5 Things I Learned Reading Johnson & Johnson’s Annual Report originally appeared on Fool.com and is written by Morgan Housel.

Fool contributor Morgan Housel owns shares of Johnson & Johnson. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson.

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