The pharmaceutical industry has long been seen as a safe investment sector to park money when bull markets show signs of slowing — much like today.
One company that’s currently peaking my interest is the New York-listed, worldwide pharmaceutical and health products giant known as Johnson & Johnson (NYSE: JNJ).
JNJ has a enviable product spread which covers many areas within the health market. The company also has an aggressive research and development arm working on a portfolio of cutting edge drugs to face future health challenges.
But most importantly for today’s analysis, JNJ achieves massive cash flows.
According to Morningstar data, free cash flow totaled more than $125 billion over the ten-year period from 2005 to 2014. That compares very well to other similar sized companies. It also exceeds figures declared by such international market giants as Boeing (NYSE: BA, $44 billion in free cash flow), Procter & Gamble (NYSE: PG, $103 billion in free cash flow), and Wal-Mart Stores (NYSE:WMT, $99 billion in free cash flow).
This free cash is a superb reflection of the management and strength of the company. Better for us, It’s enabled the stock to distribute huge amounts of cash back to investors — over $57 billion — in the form of dividends since 2005.
Furthermore, JNJ’s dividend per share has doubled in the last nine years and is now annualized at $3. That works out to an attractive yield around 3%.
There are headwinds for the company however. Like other international companies,
JNJ has had to suffer through a strengthening U.S. dollar, which was one of the reasons first quarter earnings were off 5% year-over-year. In addition, one of the company’s flagship drugs, an arthritis drug called Remicade, recently came off patent. This will result in stiff competition in the marketplace in the coming months and years.
Luckily, JNJ has had multi-billion dollar successes with new drugs released in recent years. Olysio/Sovriad, a Hepatitis C, and prostate cancer drug Zytiga are among two of them. Combined these drugs have sales north of $4 billion. Likewise, a new diabetes drug, Invokana, is also gaining popularity in the market.
Pharmaceuticals aside, JNJ’s medical device business is set to gain momentum as well. There are plans to introduce more than two-dozen new or improved products by the end of next year.
And on the consumer side, the company is launching twenty new products as well including the redevelopment of the pain relief specifically aimed at night time use called Tylenol PM, a new formulation to the world renowned Mouth wash product Listerine, and a female version of hair regrowth agent Rogaine.
Overall, Johnson & Johnson offers investors a relatively safe play in uncertain market conditions. The company oozes cash and I see it as a solid addition to any portfolio.
Yours in profits,
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