It Might Not Be A Great Idea To Buy Johnson & Johnson (NYSE:JNJ) For Its Next Dividend

Johnson & Johnson (NYSE:JNJ) is about to trade ex-dividend in the next four days. You will need to purchase shares before the 22nd of February to receive the dividend, which will be paid on the 9th of March.

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. Based on the last year's worth of payments, Johnson & Johnson has a trailing yield of 2.4% on the current stock price of $165.21. If you buy this business for its dividend, you should have an idea of whether Johnson & Johnson's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Johnson & Johnson

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Johnson & Johnson paid out 72% of its earnings to investors last year, a normal payout level for most businesses.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that Johnson & Johnson's earnings are effectively flat 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 7.5% dividend growth per year on average over the past 10 years.

Final Takeaway

Is Johnson & Johnson worth buying for its dividend? Johnson & Johnson's earnings per share have been essentially flat, and the company is paying out more than half of its earnings as dividends to shareholders. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're on the fence about its dividend prospects.

However if you're still interested in Johnson & Johnson as a potential investment, you should definitely consider some of the risks involved with Johnson & Johnson. To help with this, we've discovered 1 warning sign for Johnson & Johnson that you should be aware of before investing in their shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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