Dividend Kings In Focus: Kenvue

Printed on November third, 2024 by Felix Martinez

The Dividend Kings are an illustrious group of corporations. They stand aside from the overwhelming majority of the market as a result of they’ve raised dividends for at the least 50 consecutive years.

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

With this in thoughts, we created a full listing of all of the Dividend Kings. You’ll be able to obtain the complete listing, together with vital monetary metrics equivalent to dividend yields and price-to-earnings ratios, by clicking the hyperlink beneath:

This group is so unique that there are simply 53 corporations that qualify as a Dividend King.

Kenvue Inc. (KVUE) is the newest addition to the Dividend Kings listing, 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 shopper 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 consists of cough, chilly, allergy, smoking cessation, and ache care merchandise amongst others. Pores and skin Well being and Magnificence holds merchandise equivalent to face, physique, hair, and solar care. Important Well being accommodates merchandise for ladies’s well being, wound care, oral care, and child care.

Kenvue’s well-known manufacturers embrace Tylenol, Listerine, Band-Support, Neutrogena, Nicorette, and Zyrtec. These companies contributed roughly 17% of Johnson & Johnson’s annual income.

The corporate reported its monetary outcomes for the second quarter of 2024, revealing internet gross sales of $4.0 billion, a slight lower of 0.3% from the earlier 12 months. Nevertheless, the corporate achieved 1.5% natural development, primarily pushed by pricing methods and product combine modifications, offset by minor declines in quantity, significantly in Pores and skin Well being and Magnificence and Self Care segments. Kenvue’s diluted earnings per share (EPS) stood at $0.03, with an adjusted EPS of $0.32. The corporate highlighted productiveness beneficial properties which have enabled additional investments in its international manufacturers, aiming for sustained development.

Gross revenue margin improved considerably to 59.1%, up from 55.5% within the prior 12 months, attributable to enhanced provide chain efficiencies and pricing methods. Nonetheless, the working revenue margin dropped sharply to three.9% from 17.5%, attributed to asset impairments, model investments, and restructuring costs. The adjusted working revenue margin remained secure at 22.8%. Moreover, Kenvue incurred a $488 million non-cash impairment associated to its Dr.Ci enterprise, primarily attributable to shifting shopper traits in China, though the corporate stays dedicated to the model’s development.

For the complete 12 months 2024, Kenvue reaffirms its outlook, anticipating internet gross sales development of 1.0% to three.0% and adjusted diluted EPS between $1.10 and $1.20. The efficient tax fee for the quarter was notably decrease at 10.8% attributable to deferred tax changes from the asset impairment. Kenvue’s continued give attention to optimizing operations and model funding helps its objective of remodeling right into a extra agile, growth-oriented group, with promising indicators of progress towards its long-term goals.

Supply: Investor Presentation

Development Prospects

Johnson & Johnson produced annual earnings development of seven% from 2013 to 2022, as the corporate’s diversification allowed it to be one of many extra secure corporations within the market. Kenvue consists of simply the patron merchandise companies, which frequently produce the bottom ranges of development. Due to this fact, we count on Kenvue to develop earnings-per-share by 3% yearly by way of 2029.

Johnson & Johnson’s 61 consecutive years of dividend development is likely one of the longest out there. The corporate is each a Dividend King and a Dividend Aristocrat. We imagine that Kenvue’s penchant for dividend development is in its enterprise DNA.

Aggressive Benefits & Recession Efficiency

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

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

The corporate’s merchandise, equivalent to Band-Support and Tylenol, are wanted whatever the state of the economic system as they straight have an effect on shoppers’ well being and well-being. As trusted merchandise, they want to proceed to carry out nicely even below hostile situations.

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

Valuation & Anticipated Returns

We count on Kenvue to generate adjusted earnings-per-share of $1.15 for 2024. Due to this fact, Kenvue shares at present commerce for a price-to-earnings ratio of 19.9. For context, Johnson & Johnson shares have had a mean price-to-earner ratio of near 19 since 2013.

Countering the truth that Kenvue holds a few of the industry-leading manufacturers and that its merchandise had been lower-margin companies inside the father or mother firm, we’ve got a goal price-to-earnings ratio of 14 for the inventory. This means a headwind from a number of contraction.

Due to this fact, if the inventory had been to succeed in our goal a number of by 2029, valuation might scale back annual returns by 4.5%. EPS development (estimated at 3% per 12 months) and dividends will generate constructive returns.

Placing all of it collectively, complete returns are anticipated to succeed in 2.1% per 12 months by way of 2029. This isn’t a strong anticipated fee of return that makes the inventory a maintain.

Remaining Ideas

Kenvue is a brand new addition to the Dividend Aristocrats listing. After many years as a part of Johnson & Johnson, Kenvue grew to become an unbiased entity. As such, the corporate has produced respectable outcomes.

Whereas we discover the legacy enterprise recession-resistant and the excessive dividend yield engaging for revenue traders, the entire return profile just isn’t excessive sufficient for a purchase advice. We fee KVUE inventory a maintain.

Moreover, the next Positive Dividend databases include essentially 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 won’t qualify as Dividend Aristocrats.
• The Finest DRIP Shares: The highest 15 Dividend Aristocrats with no-fee dividend reinvestment plans.

Should you’re on the lookout for shares with distinctive dividend traits, contemplate the next Positive Dividend databases:

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