Don't Buy Johnson & Johnson (NYSE:JNJ) For Its Next Dividend Without Doing These Checks

NYSE:JNJ) is about to go ex-dividend in just 4 days. You will need to purchase shares before the 24th of August to receive the dividend, which will be paid on the 8th of September.” data-reactid=”28″>Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Johnson & Johnson (NYSE:JNJ) is about to go ex-dividend in just 4 days. You will need to purchase shares before the 24th of August to receive the dividend, which will be paid on the 8th of September.

Johnson & Johnson’s next dividend payment will be US$1.01 per share, on the back of last year when the company paid a total of US$4.04 to shareholders. Calculating the last year’s worth of payments shows that Johnson & Johnson has a trailing yield of 2.7% on the current share price of $150.09. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Johnson & Johnson has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Johnson & Johnson ” data-reactid=”30″> View our latest analysis for Johnson & Johnson

If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Johnson & Johnson paid out more than half (67%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 58% of its free cash flow as dividends, within the usual range for most companies.

It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.

here to see the company’s payout ratio, plus analyst estimates of its future dividends.” data-reactid=”37″>Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

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Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we’re not overly excited about Johnson & Johnson’s flat earnings over the past five years. We’d take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Johnson & Johnson has delivered an average of 7.5% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

From a dividend perspective, should investors buy or avoid Johnson & Johnson? While earnings per share are flat, at least Johnson & Johnson has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. With the way things are shaping up from a dividend perspective, we’d be inclined to steer clear of Johnson & Johnson.

2 warning signs for Johnson & Johnson you should know about.” data-reactid=”55″>With that being said, if you’re still considering Johnson & Johnson as an investment, you’ll find it beneficial to know what risks this stock is facing. Every company has risks, and we’ve spotted 2 warning signs for Johnson & Johnson you should know about.