Johnson & Johnson Stock is a Safe Haven Amid Market Turmoil

September 24, 2020

Johnson & Johnson (NYSE: JNJ) finished marginally up 0.2% on what was an ugly day for Wall Street. The company announced it has moved into phase-3 development of a coronavirus vaccine.

Tim’s Take:

For investors, nothing exemplifies “stability” more than healthcare giant Johnson & Johnson. The company operates in three major segments; consumer health, pharmaceuticals and medical devices.

News of the phase-3 trial for a potential Covid-19 vaccine was good news – particularly as the vaccine being tested by the company is a one-shot dose. That’s something that other leading vaccine candidates can’t boast about having.

Yet if we look at the big picture, the company has actually managed the pandemic downturn rather well. Its latest quarter saw a 10.8% year-on-year decline in revenue to US$18.3 billion.

Its medical devices segment took the biggest hit as lockdowns globally hit procedures, and thus, demand for medical equipment. However, this was partially offset by an increase in demand for pharmaceuticals.

Dividends and safety

Even more surprising was the fact that Johnson & Johnson raised its first-quarter dividend in April by a solid 6.3%.

A sizeable free cash flow of US$5.5 billion in its latest quarter shows you why it can do this, even amid one of the worst economic downturns in history.

Being one of only two companies globally to be rated “AAA” by credit ratings agencies – the other being Microsoft Corporation (NASDAQ: MSFT) – essentially means that the market views the firm as more credit-worthy (and safe) than even the US government.

For more conservative, long-term investors who are worried about volatility heading into the US election in November, Johnson & Johnson’s Dividend Aristocrat status is also appealing. 

Furthermore, the stock’s 2.8% dividend yield could serve as a useful ballast in any portfolio.

Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Microsoft Corporation.

This material is categorised as non-independent for the purposes of CGS-CIMB Securities (Singapore) Pte. Ltd. and its affiliates (collectively “CGS-CIMB”) and therefore does not provide an impartial or objective assessment of the subject matter and does not constitute independent research. Consequently, this material has not been prepared in accordance with legal requirements designed to promote the independence of research. Therefore, this material is considered a marketing communication.

This material is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CGS-CIMB’s clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this material. The information and opinions in this material are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, derivative contracts, related investments or other financial instruments or any derivative instrument, or any rights pertaining thereto. CGS-CIMB have not, and will not accept any obligation to check or ensure the adequacy, accuracy, completeness, reliability or fairness of any information and opinion contained in this material. CGS-CIMB shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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