1 Healthy Stock for Rip Van Winkle
Jul 9th 2012 3:42PM
Updated Jul 9th 2012 3:48PM
Rip Van Winkle has been on my mind recently. It's not that I want to sleep for 20 years like he did (although it's tempting at times). Instead, my thoughts have centered on investing with a Rip Van Winkle attitude - buying stocks to hold for decades without worrying about them.
One company I'd include in a Rip Van Winkle portfolio is Johnson & Johnson (NYS: JNJ) . Let's look at how you can reduce the pain of investing and reap dividends with this health products giant.
You will worry less when investing in a company if you're highly confident in the staying power of its products. Johnson & Johnson's track record should help reduce anxiety.
The company began making health-related products in the late 19th century. To get a perspective on how successful Johnson & Johnson has been since then, consider that last year, around 70% of sales were from products with the No. 1 or No. 2 position globally.
Rip Van Winkle-style investors should like the timeless appeal of many J&J brands. Major products include:
- Household names like Band-Aid, Listerine, Tylenol, and Visine
- Medical diagnostics and devices to help with diabetes care, vision care, and minimizing the invasiveness of surgeries
- Drugs to treat anemia, arthritis, bipolar disorders, cancer of plasma cells, and other diseases
While we would all like to picture a world 20 years from now without bad breath, cuts, headaches, and serious diseases, the reality is that these problems will probably still exist. Johnson & Johnson will most likely be around, too.
In contrast, investing in a drug company such as Arena Pharmaceuticals (NAS: ARNA) could be nerve-wracking. As The Motley Fool's David Williamson pointed out recently, Arena has the point position in the obesity-drug market right now, but its success is not a sure thing. Rip Van Winkle investors like sure things -- or as close as we can get.
Reliable dividend payments can help long-term investors sleep well. It doesn't get much more reliable than J&J's 50 consecutive years of increasing dividends. The company currently boasts a solid forward dividend yield of 3.6%. J&J increased its dividend payments by an average of 8% annually over the last five years.
What do these numbers mean? If Johnson & Johnson maintains that 8% average annual rate of increasing dividends, in 20 years, you would more than quadruple your money by reinvesting dividends even if the stock stayed at its current price.
Of course, this calculation doesn't include the effects of taxes or inflation. However, it also excludes the possibility of J&J's stock price increasing. For historical comparison, the stock today trades about six times higher than it did 20 years ago, after accounting for share splits -- even ignoring the impact of dividends.
Other health-related stocks provide solid dividends, too. For example, pharmaceutical company Pfizer (NYS: PFE) has a forward dividend yield of 3.8%. However, it doesn't have the long-running track record of dividend increases like J&J has. Pfizer slashed its dividend payment by 50% in 2009, but has increased dividends each year since then.
Even solid companies like Johnson & Johnson can perform poorly at times. Investors can't be asleep at the wheel when business fundamentals change.
However, looking for stocks that you can hang on to for decades is smart. Johnson & Johnson appears to be one of those kinds of stocks. Investing in it should allow you to have restful sleep over the years -- with fewer headaches.
Stocks like Johnson & Johnson that pay great dividends have relieved investors' pain for years. To learn about more great dividend ideas, check out The Motley Fool's new free report: "The 3 Dow Stocks Dividend Investors Need." Get your copy by clicking here.
At the time this article was published Fool contributor Keith Speights has no positions in the stocks mentioned above. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Pfizer and Johnson & Johnson, as well as creating a diagonal call position in Johnson & Johnson. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.