Johnson & Johnson's May Hike Up Dividends (NYSE:JNJ)

Dividends from Johnson & Johnson (NYSE:JNJ) are always good, but an increased dividend is even better!  JNJ has a history of raising dividends, and this year should be no different.  Alan Brochstein discusses his analysis for the stocks dividend.

Dividend growth at JNJ has grown at a compounded 14% over the past two decades, though it has tailed off over the past couple of years.  Last year, the company hiked the dividend from an annual rate of 1.82 t0 1.96, just 7.7%. I think that JNJ can afford to be much more generous this year, as its balance sheet has improved as has its expected earnings. At the end of 2008, the company had a small amount of net cash, with cash and short-term investments of $12.8 billion exceeding the total debt of $11.8 billion. A year later, it had $19.4 billion in cash/s.t. investments and $14.5 billion in debt. Looking ahead, the balance sheet should improve further given the large generation of FCF [free cash flow] as well as the incoming payments from Boston Scientific (BSX). What a great problem with which JNJ must contend: How to spend all of that operating cashflow!

Historically, the company has reinvested in the business with capital expenditures and acquisitions, repurchased stocks and paid dividends. Share repurchases dropped last year and account for the build-up in net cash.

JNJ is expected to earn a record $4.91 in 2010. Applying a 44% payout ratio, which is slightly higher than the current ratio but in line with the progression over the past several years, I get a dividend of 2.16. which would be a boost of 10%. With the stock trading at about 65.00, that works out to what I consider a relatively attractive 3.3% dividend yield.

Read the full story and see the graph of histroical dividends here.