Did Johnson & Johnson Just Give Investors 23 Billion Reasons to Buy Its Stock?

Johnson & Johnson (NYSE: JNJ) didn't have an exceptional 2024; in fact, it was one of the worst-performing stocks on the vaunted, 30-company Dow Jones Industrial Average that year.

Yet, if the company's inaugural earnings release in 2025 is any indication, this year might prove to be different. It posted encouraging growth on the top line and notched a double beat on analyst estimates. Here's the skinny on that quarter and whether the rest of the year will be healthy enough to rank the company's stock as a buy.

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Almost $23 billion and counting

To give some idea of the sheer size of Johnson & Johnson, a glance at its reported sales figure is revealing. In the fourth quarter alone, it earned more than $22.5 billion; for the entirety of 2024, the tally was just shy of $89 billion.

It isn't easy to build a company to the point where it regularly generates over $20 billion in sales every three months. It's even more challenging to post any kind of meaningful growth. Management deserves credit for achieving both, as the company's top line expanded by more than 5% year over year in the quarter. Meanwhile, the $22.5 billion edged past the consensus analyst estimate for the period.

Cruising down the profit-and-loss statement to the bottom line, the dynamic was rather different. On a non-GAAP (adjusted) basis, net income fell by 11% to almost $4.95 billion. However, this shook out to $2.04 per share, which bettered the average pundit projection of $2.02.

In my view, what's greatly helping Johnson & Johnson of late is a tighter business focus. For decades, it was a unique but somewhat clunky combination of classic pharmaceutical company and consumer healthcare products purveyor. That ended when it hived off the latter business as the separately managed and traded Kenvue in mid-2023.

A leaner operator

These days, the slimmed-down Johnson & Johnson is doing well in the two major areas of the healthcare business in which it operates. Both of the company's reporting segments posted encouraging sales growth compared to the same quarter of 2023.

Innovative medicine garnered a 4% improvement, bringing in $14.3 billion. And medtech (medical technology; essentially, healthcare devices and associated products) -- fortified with well-considered recent acquisitions Abiomed and Shockwave Medical -- rose nearly 7% to $8.2 billion. The former segment's growth was aided greatly by sales of oncology drugs, and the latter did brisk business in cardiovascular (thank you, Abiomed) and electrophysiology.

The pharmaceutical industry can be quite a roller coaster in terms of profitability. Happily for its investors, Johnson & Johnson is forecasting a notable improvement in that score this year.

In that fourth quarter and full-year earnings report, it proffered guidance of $10.50 to $10.70 per share for adjusted net income for the entirety of 2025. This would represent growth of at least 5% over the year-ago figure. Sales should also rise, albeit more modestly at a projected 0.5% to 1.5%.

Another metric going in the right direction is free cash flow, which amounted to roughly $19.8 billion last year (against the slightly over $18.2 billion of 2023). Investors would be wise to keep an eye on that line item because it's the source of Johnson & Johnson's hallowed dividend. Despite the Kenvue spin-off, the company continues to habitually declare dividend raises every year -- in fact, it's one of the market's rare Dividend Kings.

These days, its annual distribution (paid quarterly) is $4.96 per share, which shakes out to a muscular dividend yield of 3.2%. That's not only impressive for the typically tight-fisted pharmaceutical sector but also compares very well to other blue chip stocks -- the average dividend yield on the S&P 500 index stands at 1.2%.

I think Johnson & Johnson stock offers an appealing blend of growth potential and an extremely reliable income stream with its ever-rising dividend. It's also priced cheaply enough to be considered a bargain. This stock feels like a buy to me now.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kenvue. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.