The Dividend Aristocrat Defying Coronavirus

Many dividends aren't surviving COVID-19's economic fallout...

With shutdowns causing operations in many businesses to be closed, there's no cash coming in the door. That means they can't even pay their essential costs like rent or payroll... let alone reward shareholders through dividends and buybacks.

More than 500 companies have cut or lowered dividends worldwide, according to ICE Data Services. This includes 12 S&P 500 Index companies – including Boeing (BA) and Delta Air Lines (DAL).

Goldman Sachs is even predicting that S&P 500 dividend payouts will fall 25% this year because companies won't be able to issue debt to fund their payouts.

Federal Reserve Bank of Minneapolis President Neel Kashkari recently said that U.S. banks should stop paying dividends to build up safety reserves to protect themselves in the event of a recession.

With earnings season kicking into high gear, we may get more announcements on dividend cuts as companies look to conserve cash. But today's company is bucking that trend...

Johnson & Johnson (NYSE: JNJ) is a $400 billion consumer-products giant. It's been in business for more than 130 years and has more than 130,000 employees with operations in nearly every country around the world.

Johnson & Johnson is the largest consumer-health products company in the world, the second-largest pharmaceutical company in the U.S., and one of the top medical-device firms.

You know its brands... It owns Tylenol, Motrin, Listerine, Benadryl, Neosporin, and Visine. They dominate pharmacies across the world... and that gives Johnson & Johnson an advantage...

Last week, shares of Johnson & Johnson rose on the company's first-quarter results. Both earnings and revenue beat estimates for the quarter. And the company noted increased demand for over-the-counter products like Tylenol, Motrin, Listerine, and Zyrtec because of the current public health crisis.

It did lower its full-year 2020 guidance to account for the coronavirus pandemic. But while the guidance is lower than the previous forecast, it hasn't fallen off a cliff. It's still within a reasonable range of the estimate.

The firm anticipates adjusted earnings per share of $7.50 to $7.90 compared with its previous forecast of $8.95 to $9.10 – below the analyst consensus of $8.15. The company also expects revenue of $79.2 billion to $82 billion, versus the estimate of $81 billion.

But perhaps more importantly, Johnson & Johnson announced a 6.3% increase in its quarterly dividend. That brings its annual payout to $4.04, from $3.80.

Johnson & Johnson has now raised its dividend for 58 consecutive years. This puts it in a group of 66 companies called "Dividend Aristocrats" – companies that have raised their dividends for 25 straight years.

This increasing dividend payout comes down to the strength of Johnson & Johnson's balance sheet. It has more than $19 billion in cash on hand and about $28 billion in debt. But while debt exceeds cash, Johnson & Johnson can easily afford its interest payments...

Last year, Johnson & Johnson reported operating profit of more than $21 billion. Interest expense came in at $769 million for the year.

And Johnson & Johnson is also working to develop a coronavirus vaccine...

The company recently said it was working with an agency within the U.S. Department of Health and Human Services to increase the manufacturing of its coronavirus vaccine candidate. The deal is worth $1 billion and would enable JNJ to produce more than 1 billion doses.

With the deal, Johnson & Johnson said it could be ready for human trials by September and emergency use by early 2021. And the company has two backup candidates if the leading vaccine fails trials.

But CEO Alex Gorsky struck an optimistic tone in a recent interview with CNBC. Gorsky said there were good early indications that the vaccine will be both safe and effective.

Now, Johnson & Johnson did sell off with the rest of the market in March. From its all-time high on February 5, JNJ shares fell nearly 28% to its March low. But it's made up almost all of the decline. Shares now sit a little more than 1% below those highs.

And it outperformed the broader market on the way down... and on the way back up. The S&P 500 Index fell 34% from its February highs to its low on March 23. And it's rebounded about 28% since then (compared with a near 37% bounce for Johnson & Johnson).

Despite the coronavirus, Johnson & Johnson's financial position remains strong. That's allowing it to raise its dividend while many other companies are suspending or cutting payouts. And the company is working on a potential COVID-19 vaccine, which is another tailwind.

Sometimes investing is simple.