J&J’s Corporate Split: Just Another Big, Blue-Chip Breakup
Johnson & Johnson is the latest in a line of mega-cap household names that have split their businesses in a bid to boost growth.
![Johnson & Johnson building](https://cdn.mos.cms.futurecdn.net/kVggkCgdbSGxo9jEGSQmQJ-415-80.jpg)
Buy-and-hold dividend investors may be forgiven if they feel like they're having déjà vu all over again. After all, if it seems like many of our most iconic blue-chip dividend payers are getting smaller by the day ... well, it's because they are.
Healthcare giant Johnson & Johnson (JNJ, $163.06) announced Friday its intention to split itself into two separate companies, joining an increasingly long list of illustrious firms that are breaking up to boost growth.
The move comes just a day after General Electric (GE, $107.00) said it would cleave itself into three firms over the next few years.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The trend hardly ends there. In fact, there's no shortage of Dow stocks, former Dow stocks, S&P 500 Dividend Aristocrats (companies that have increased their payouts annually for at least 25 years) and other dividend stalwarts that are trying to achieve addition by division.
More on that in a moment.
Johnson & Johnson’s Plan
In the most recent case, Johnson & Johnson plans to break off its consumer health business – the one that makes Tylenol, Band-Aid and Listerine – from its pharmaceutical and medical devices units. Those latter two businesses will retain the Johnson & Johnson name and be more closely aligned with each other, JNJ says.
J&J’s intent – as is pretty much always the case with these sorts of breakups – is to liberate faster-growth, higher-margin businesses from the drag of slower-growth, lower-margin businesses.
We've been seeing a lot of this lately, especially with some of investors' favorite blue-chip dividend stocks, which J&J certainly qualifies as. This Dow Jones component is as reliable a dividend grower as they come. It's also a member of the S&P 500 Dividend Aristocrats, having increased its payout for 59 consecutive years.
It remains to be seen which of the resultant companies would inherit J&J’s Dividend Aristocrats membership card.
Big, Blue-Chip Breakups
As for General Electric, which announced its own separation just a day before the JNJ news, sure, it ain't what it used to be. But it still fits with the trend. It's an iconic dividend stock, and was an original member of the Dow, dating back to 1896. True, GE was dropped from the Dow in 2018, but it has retained at least some of its blue-chip luster.
Then there's Big Blue. International Business Machines (IBM, $120.27) is both a Dow stock and a member of the Dividend Aristocrats, with a 26-year dividend-growth streak of its own. It bulked up big time with its $34 billion acquisition of Red Hat in 2019. The deal is supposed to help the legacy technology company compete in the lucrative cloud-based services industry. And so IBM's spinoff of its boring managed infrastructure services unit – called Kyndryl Holdings (KD, $21.30) – was a logical next step.
Or consider the case of AT&T (T, $24.92). T is no longer in the Dow, having been removed from the average (for the third time in its history) in 2015. Although it's still a Dividend Aristocrat by dint of 36 straight years of dividend growth, that streak appears to be coming to an end. The telecommunications giant spun off both DirecTV and WarnerMedia earlier this year. Without contributions from those businesses, AT&T's dividend will naturally have to come down, analysts say.
Getting back to the healthcare sector, Merck (MRK, $84.02) is a Dow stock with a decade of annual dividend growth to its credit. Earlier this year, the pharmaceutical giant spun off its women's health business as publicly traded Organon (ORG, $34.72).
Indeed, JNJ is really just following in the footsteps of Merck and former Dow stock Pfizer (PFE, $50.18), both of which have already moved to free themselves from their less profitable businesses. Pfizer, for example, spun off Upjohn in 2020 and merged it with Mylan to form Viatris (VTRS, $14.46).
Viatris' portfolio includes some of the best-selling drugs of all time, such as Lipitor and Viagra. But mature, off-patent medications aren't known for their spectacular margin and growth profiles.
We could go on, but the bottom line for dividend investors is that the multifaceted companies that once produced both income and growth are increasingly being split to unlock value. And in turn, that’s forcing investors to decide which parts of these legacy companies (if any) to continue holding.
Disclaimer
Share prices are as of Nov. 11.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Dan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.
A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.
In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics, demographics, real estate, cost of living indexes and more.
Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.
Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Stock Market Today: Stocks Slip Ahead of Mega-Cap Earnings
GE Aerospace shares soared after earnings while United Parcel Service stock slumped.
By Karee Venema Published
-
Stock Market Today: Mega-Cap Tech Rallies to Drag Markets Higher
Markets focused on upcoming earnings from Magnificent 7 stocks rather than chaos in D.C.
By Dan Burrows Published
-
Stock Market Today: Stocks Tumble After Spectacular Global Internet Crash
Market participants rushed out of risk assets to end a wild week of trading.
By Dan Burrows Published
-
Stock Market Today: Dow Sinks 533 Points as Big Banks, Mega Caps Slump
Goldman Sachs and Apple were two of the worst-performing blue chip stocks on Thursday.
By Karee Venema Published
-
Stock Market Today: Semis Get Slammed and Blue Chips Bounce
The potential for more curbs on tech sales to China set off a rotation into blue chips.
By Dan Burrows Published
-
Stock Market Today: Dow Spikes 742 Points After UnitedHealth Earnings
The S&P 500 and Nasdaq also scored wins Tuesday albeit with much smaller gains than the blue chip Dow.
By Karee Venema Published
-
Stock Market Today: Dow Adds 210 Points as Apple, Goldman Hit New Highs
A big rally in blue chips and some dovish Fed speak boosted the equities market Monday.
By Karee Venema Published
-
Stock Market Today: Markets Bounce Back on Rate-Cut Optimism
The latest readings on consumer sentiment and inflation helped lift the odds of the Fed easing in September.
By Dan Burrows Published