My Drill Sergeant’s Guide To Dividend Discipline

I’m looking at Johnson & Johnson’s (JNJ) latest quarterly numbers from my Lake Tahoe office, and I keep thinking about something my drill sergeant used to say in boot camp: “The best soldiers are the ones nobody notices until the shooting starts.”

JNJ is that soldier right now.

While everyone’s losing their minds over the latest AI miracle stock or cryptocurrency nonsense, this over 137-year-old company just posted Q2 earnings of $2.77 per share against expectations of $2.68.

Revenue climbed 6% to $23.7 billion, beating estimates by $840 million. When management raised full-year guidance to $93.6 billion with earnings between $10.80 and $10.90 per share, that wasn’t corporate cheerleading.

That was confidence born from actually running a profitable business.

What caught my attention is that the healthcare sector has been massacred this year, down more than 12% and ranking dead last among S&P 500 sectors, but JNJ keeps generating free cash flow approaching $7 per share.

When fundamental performance diverges this dramatically from stock price action, somebody’s making a serious miscalculation.

Meanwhile, the technical picture tells its own story. JNJ finally broke out of its three-year downtrend, and the 200-day moving average is climbing again. We’re trading around $177, just shy of that $187 all-time high from early 2022.

My math suggests fair value sits right around $187, based on forward earnings of $11 and a reasonable 17x multiple for a company that’s been paying dividends since the Eisenhower administration.

Now the usual suspects will trot out their concerns about MedTech competition, supply chain hiccups, and ongoing litigation. These aren’t imaginary risks, but they’re also not new.

What’s changed is market recognition, with 23 analyst upgrades in the past 90 days and 0 downgrades.

And the timing could not be better for us gray-haired investors. The baby boom generation is heading into peak medical spending years, and we’re not getting any younger.

JNJ’s oncology division alone targets $50 billion in revenue by 2030, while 13 brands posted double-digit growth last quarter. This goes beyond some flashy financial maneuvering. This is organic expansion in markets that aren’t disappearing anytime soon.

On top of these, the company pays a $1.30 quarterly dividend this week. Then comes Q3 earnings on October 14, where options traders are pricing in just a 2.5% move.

In my 50 years of watching markets, low volatility expectations often precede the biggest surprises.

From a risk perspective, support should hold around $169 where those late 2024 highs provide natural support. There’s an older gap at $155, but given current fundamentals, I’d bet my retirement portfolio we won’t be revisiting those levels.

This reminds me of 1982, when Paul Volcker was crushing the economy with 20% interest rates and everyone thought the world was ending.

The smart money quietly accumulated quality dividend-paying stocks while others were panic-selling. Those patient investors made fortunes over the following decades.

JNJ represents that same opportunity today.

While everyone else is focused on chasing meme stocks and Wall Street continues to panic about AI disruption, here’s a company that’s been steadily compounding wealth through Depression, world wars, and every other crisis you can imagine.

They make products people need, whether the economy is booming or busting.

That drill sergeant of mine would have loved JNJ – disciplined, reliable, and deadly effective when it counts. While the market’s been chasing flashy tech stocks like recruits chasing the latest fad, this company has been doing the unglamorous work that actually wins wars.

The shooting has started in healthcare investing, and JNJ is exactly the kind of soldier you want in your foxhole.