More Than Just a Band-Aid for Your Portfolio

Diane is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Best known for its trademark Band-Aid bandages and baby care products, there is a lot more to Johnson & Johnson (NYSE: JNJ) as highlighted when the company recently received fast-track U.S. Food and Drug Administration (FDA) approval for the worldwide use of Sirturo, a drug to treat a rare form of resistant tuberculosis.

While the ailment is very uncommon here in the states, it strikes more than 630,000 people around the globe who cannot be cured with existing remedies alone.

Sirturo isn’t projected to be a huge moneymaker for J&J since those who will need and benefit most from the drug are people in underdeveloped (poor) countries. Its biggest profit may simply come in the form of goodwill among regulators, governments and needy patients dotted around the world by J&J kindly providing the drug. And it sure is good to have the right friends in the right places, something J&J knows all too well.

J&J has had its share of troubles, namely quality problems of factories churning out its OTC medications, the approximately $3 billion charge in 2011 for costs associated with a recall of metal artificial hips, and patent expirations on a few key drugs.

Yet J&J can afford to be magnanimous.  

In its cache of newly launched products, expected to generate big dollars, are prescription drugs for stroke prevention; treatments for reducing the risk for deep vein thrombosis; and a drug for prostate cancer that is resistant to medical or surgical treatment. The company’s recently released Tylenol Precise, a pain relieving cream that can be applied directly to the aching area, is also expected to be very popular, as are J&J’s new 1-day Acuvue Moist Contact Lenses for Astigmatism, Neutrogena Wet Sun Block SPF 50 Spray and its RoCRetinol CORREXION face cream line for sensitive skin.

There are high hopes for J&J's new drug Canagliflozin to get FDA approval in 2013. The drug lowers blood-sugar levels by increasing glucose excretion in the urine. Clinical trials found it also helps patients lose weight. Annual sales have the potential to reach $1 billion by 2018.

J&J shares returned about 8% in 2012, lagging returns logged by rivals Pfizer (NYSE: PFE), and Abbot Laboratories (NYSE: ABT). But both Pfizer and Abbot Lab recognize they diverged too far from their core businesses, and set out to remedy the situation with spin-offs. Abbot shed its pharmaceutical arm, AbbVie (NYSE: ABBV) and Pfizer is preparing to shed Zoetis, its animal health care business, through IPO. The thing is, history shows that spin-offs usually outperform their parent company.

J&J could have a healthy 2013, led by its underappreciated pharmaceutical division.

What has never been under-appreciated is its hearty dividend yield of 3.45%. The company rewards shareholders by paying out nearly half of its earning in dividends. The drug giant has raised its dividend for 50 straight years. In 2013, an increase around 7% is expected.

Dividends do matter—a lot. Over time, more than half of a stock’s total return comes from dividends.

J&J, a truly diversified health-care company, traces its roots back to 1886 and was the first hugely successful pioneer in first aid treatments.  Over some two centuries, J&J has morphed into a global powerhouse through strategic acquisitions and new product launches that range from health and beauty consumer products, to medical devices and diagnostics, to a bevy prescription medicines.

This New Brunswick, N.J. based company now just doesn’t simply put a disinfectant ointment on a bruised knee and cover it with a bandage, it can now replace a knee and provide effective over-the-counter or prescription medicines to treat the pain.

J&J has more than 250 operating companies in 60 countries and employs some 129,000 people. In the crowded and explosive consumer health and drug market, J&J is world’s largest and most diverse medical devices and diagnostic company, the world’s fifth largest biologics company, the world’s sixth largest consumer health company and the world’s eighth largest pharmaceutical company.

Adding J&J may do more than just baby and bandage an aging and ailing portfolio. In addition to likely capital appreciation, its generous dividend will pleasantly pad a position.

So no more tears for this health care behemoth. J&J--you've come a long way baby!

 


DianeAlter has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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