Dividend Kings In Focus: Kenvue

Revealed on November twenty eighth, 2023 by Bob Ciura

The Dividend Kings are an illustrious group of corporations. These corporations stand other than the overwhelming majority of the market as they’ve raised dividends for a minimum of 50 consecutive years.

We imagine that traders ought to view the Dividend Kings as probably the most high-quality dividend development shares to purchase for the long run.

With this in thoughts, we created a full checklist of all of the Dividend Kings. You may obtain the total checklist, together with vital monetary metrics corresponding to dividend yields and price-to-earnings ratios, by clicking the hyperlink beneath:

This group is so unique that there are simply 54 corporations that qualify as a Dividend King.

Kenvue Inc. (KVUE) is the newest addition to the Dividend Kings checklist, having not too long ago been spun off from former father or mother firm Johnson & Johnson (JNJ).

This text will analyze Kenvue’s enterprise mannequin, future development catalysts, and anticipated returns.

Enterprise Overview

Kenvue operates within the healthcare sector as a client merchandise producer. In Might 2023, Kenvue was spun off from Johnson & Johnson. Now, Kenvue operates three segments: Self Care, Pores and skin Well being and Magnificence, and Important Well being.

Self Care’s product portfolio contains cough, chilly, allergy, smoking cessation, and ache care merchandise amongst others. Pores and skin Well being and Magnificence holds merchandise corresponding to face, physique, hair, and solar care. Important Well being incorporates merchandise for girls’s well being, wound care, oral care, and child care.

Properly-known manufacturers in Kenvue’s product line up embody Tylenol, Listerine, Band-Support, Neutrogena, Nicorette, and Zyrtec. These companies contributed roughly 17% of Johnson & Johnson’s annual income.

On October twenty sixth, 2023, Kenvue reported third quarter earnings outcomes for the interval ending October 1st, 2023. Income grew 3.4% to $3.92 billion, which was $10 million above estimates.

Supply: Investor Presentation

Adjusted earnings-per-share of $0.31 was in-line with expectations. Natural gross sales grew 3.6% as pricing and blend had been partially offset by a 3.5% decline in quantity. Chilly and cough had been once more robust whereas pores and skin, well being, and sweetness additionally confirmed positive factors. Gross revenue margin improved 140 foundation factors to 57.5%.

Kenvue additionally supplied an up to date outlook for 2023. The corporate now expects income development to be in a variety of 4.0% to 4.5% and natural development of 5.5% to six.0%, down from 4.5% to five.5% and 5.5% to six.5%, respectively. Kenvue tasks adjusted earnings-per-share to be in a variety of $1.26 to $1.28 for the 12 months.

Progress Prospects

Johnson & Johnson produced annual earnings development of seven% for the 2013 to 2022 interval as the corporate’s diversification allowed it to be one of many extra secure corporations available in the market place. Kenvue consists of simply the patron merchandise companies, which had been typically produced the bottom ranges of development. Subsequently, we anticipate that Kenvue will develop earnings-per-share by 3% yearly by way of 2028.

Johnson & Johnson’s dividend development streak of 61 consecutive years is without doubt one of the longest available in the market place. The corporate is each a Dividend King and a Dividend Aristocrat. We imagine that penchant for dividend development is in Kenvue’s enterprise DNA.

Aggressive Benefits & Recession Efficiency

Kenvue’s former father or mother firm Johnson & Johnson has confirmed to be probably the most profitable corporations at navigating recessions. Although Kenvue not advantages from its father or mother firm’s diversification, we imagine that it could show equally efficient at dealing with financial downturns.

Since Kenvue was a subsidiary of Johnson & Johnson throughout the Nice Recession of 2008-2009, there isn’t any knowledge on its earnings-per-share efficiency throughout that point. Nonetheless, traders can moderately infer that Kenvue would show an identical diploma of resilience throughout recessions as its former father or mother firm.

The corporate’s merchandise, corresponding to Band-Support and Tylenol, are wanted whatever the state of the financial system as they deal immediately with customers’ well being and well-being. As trusted merchandise, they want proceed to carry out nicely even underneath opposed circumstances.

General, Kenvue ought to proceed to boost its dividend for a lot of extra years due to its low payout ratio, its respectable resilience to recessions, and its wholesome steadiness sheet.

Valuation & Anticipated Returns

We anticipate Kenvue to generate adjusted earnings-per-share of $1.27 for 2023. Subsequently, shares of Kenvue presently commerce for a price-to-earnings ratio of 15.9. For context, Johnson & Johnson shares have a mean price-to-earnings ratio of near 19 since 2013.

Countering the truth that Kenvue holds a few of the trade main manufacturers with that its merchandise had been the decrease margin companies throughout the father or mother firm, we have now a goal price-to-earnings ratio of 14 for the inventory. This suggests a headwind from a number of contraction.

Subsequently, valuation may cut back annual returns by 2.5% if the inventory had been to achieve our goal a number of by 2028. Optimistic returns shall be generated by EPS development (estimated at 3% per 12 months) and dividends.

On July twentieth, 2023, Kenvue introduced its first-ever quarterly dividend of $0.20 per share to be distributed on September seventh, 2023. The annualized payout of $0.80 per share represents a present yield of 4.0%.

Placing all of it collectively, whole returns are anticipated to achieve 4.5% per 12 months by way of 2028. This can be a strong anticipated charge of return that makes the inventory a maintain, however not a purchase presently.

Closing Ideas

Kenvue is a brand new addition to the Dividend Aristocrats checklist. After a long time as a part of Johnson & Johnson, Kenvue grew to become an impartial entity early within the second quarter. The corporate has produced respectable outcomes as far as an impartial firm.

Whereas we discover the legacy enterprise to be recession-resistant and the excessive dividend yield to be engaging for revenue traders, the full return profile will not be excessive sufficient for a purchase advice. We charge KVUE inventory to be a maintain.

Moreover, the next Certain Dividend databases include probably the most dependable dividend growers in our funding universe:

The Dividend Champions: Dividend shares with 25+ years of dividend will increase, together with these that will not qualify as Dividend Aristocrats.
The Greatest DRIP Shares: The highest 15 Dividend Aristocrats with no-fee dividend reinvestment plans.

For those who’re in search of shares with distinctive dividend traits, think about the next Certain Dividend databases:

The key home inventory market indices are one other strong useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them month-to-month: