Procter & Gamble (PG) Vs. Johnson & Johnson (JNJ): Dividend Stock Analysis (2024)

Today, two titans of the Dividend Investing community enter the ring to face off. Yes, we have another dividend stock showdown my friends. We've seen The Rock vs. Stone Cold, Hulk Hogan vs. Andre the Giant, Undertaker vs. Shawn Michaels. Now, we have Procter & Gamble (PG) vs. Johnson & Johnson (JNJ). We will compare the company's brands, dividend history, and current stock metrics to determine which Dividend King is a better undervalued dividend stock to buy today!

Why Procter & Gamble and Johnson & Johnson?

The reason Procter & Gamble & Johnson & Johnson were selected for this showdown is simple. Both companies are at the top of their class, in terms of dividend investing. In fact, we even consider both the companies in the Top 5 Foundation Dividend Stocks for Your Portfolio. That Top 5 list was created to help beginning investors purchase the best, high quality dividend stocks to begin building their dividend stock portfolios.

Both companies also share the coveted title of Dividend Kings. Dividend Kings are companies that have increased their dividend for at least 50 consecutive years. This means that both companies have demonstrated their ability to increase their dividend through good times and bad. By increasing their dividend for over 50 years, they have still managed to increase their dividend increase during the following economic crises: COVID-19 Pandemic, Financial Crisis, Dot-Com Bubble, Savings & Loans Crisis, and others. When the going gets tough, you can count on PG and JNJ to increase their dividends.

Format of the Dividend Stock Showdown

Now, let's lay down the ground rules and format for this Showdown and Battle Royale. In this battle, we will review the following aspects, and metrics, of the companies:

• Brand Portfolios
• Each Company's April Dividend Increase
• The 3 Metrics of Our Dividend Stock Screener
• Dividend Yield

By the end of this comparison, we are hoping to see if one company is not only better built for the long run, but also if one company is cheaper than the other! That's right, for this one, we are not just going to look at the results of our Dividend Stock Screener.

I'm pumped up and eager to see the results of the analysis. Enough talking, let's dive right into the analysis and review some dividend stocks!

Dividend Stock Showdown

For this showdown, we are going to use the closing stock prices as of April 22, 2021. We will also use the average analyst EPS, per Yahoo! Finance, at the time the article was written, and dividend information from www.dividendinvestor.com. Now, let's jump right in and see which Dividend King comes out on top!

Brands

When you think of Procter & Gamble and Johnson & Johnson, you immediately think of the company's strong brand portfolios. I love consumer staple giants for this reason. These two companies own brands that can be found in every house's medicine cabinet, laundry room, and nursery!

Owning strong brands that dominate in their sectors is key to building strong, consistently growing earnings and cash flow streams. That is why the two companies have been able to achieve Dividend King status.

So let's take a look at the top brands for each company and see if one company's brand portfolio is better than the other. Here is a detailed list, per each company's website.

Procter & Gamble Brands: Pampers, Luvs, Bounce, Cheer, Downy, Dreft, Tide, Gain, Bounty, Charmin, Puffs, Always, Braun, Gillette, Head & Shoulders, Old Spice, Pantene, Febreze, Cascade, Mr. Clean, Dawn, Swiffer, Crest, Scope, Oral-B, Pepto Bismol, Vicks, Ivory, Olay, and more!

Johnson & Johnson: Neutrogena, Aveeno, Rogaine, Lactaid, Splenda, Tylenol, Zyrtec, Benadryl, BENGAY, Nicorette, Sudafed, Listerine, Band-aid, Neosporin, Desitin, and more!

Both lists contain powerhouse brands. I cannot pick a winner from the two. Both are great and are found throughout my house!

Winner: Draw

April 2021 Dividend Increase

April is the best month for dividend investors. Why? Many great dividend growth stocks announce an increase to YOUR dividend payout during the month. It is hilarious that these two dividend titans also increase their dividends in the same month. Both companies have already announced their dividend increase for the month. Man oh man, was the news great. It was just another example that dividends are back!

The results are in. In fact, both companies have announced their dividend increases already. The following chart compares the dividend increases for PG and JNJ:The Procter & Gamble dividend increase was double that of Johnson & Johnson. It is not that JNJ's dividend increase was bad. In fact, it was in line with our expectations and just 1% below the company's five-year average dividend growth rate. We just weren't expecting such a MASSIVE dividend increase from PG. Especially given that the company's recent dividend growth was significantly lower than this 10% pop in 2021. There is a clear-cut winner for this dividend metric.

Winner: Procter & Gamble

Price to Earnings Ratio (Stock Screener Metric #1)

The first metric of our dividend stock screener is the Price to Earnings Ratio. This metric is a quick calculation that helps you assess the valuation of a company. We typically compare a company's P/E Ratio to the S&P 500 to make sure the stock's valuation is less than the market. In 2021, that's typically an easy feat given the fact the S&P 500's P/E Ratio is over 40x!

For a dividend stock showdown, however, comparing each company's P/E Ratio will help us identify which company is currently cheaper compared to the other. The following chart shows a clear winner!

Winner: Johnson & Johnson

Dividend Payout Ratio (Stock Screener Metric #2)

The second metric of our dividend stock screener is the payout ratio. This metric assesses the safety of a company's dividend. The goal of being a long-term, buy and hold investor, is to build a dividend that will grow over time. After all, a company cannot pay out more cash to shareholders than it earns in the long run. That's why constantly monitoring a company's dividend payout ratio is so critical.

When reviewing a company's dividend payout ratio, we like companies to have a dividend payout ratio of less than 60%. This leaves plenty of room for a company to continue paying, and growing, its dividend. In fact, we think a perfect dividend payout ratio is between 40%-60%! If it falls in that range, even better!

The following chart compares the dividend payout ratios for Procter & Gamble and Johnson & Johnson:

The results here are interesting. Johnson & Johnson has a perfect dividend payout ratio, falling in that 40%-60% range. Procter & Gamble's payout ratio is just a hair above our 60% threshold. Overall, I'm not too concerned, as there is still plenty of room before the company's dividend payout ratio exceeds 100%. However, when compared against each other, Johnson & Johnson's perfect dividend payout ratio comes out on top!

Winner: Johnson & Johnson

Dividend Growth History (Stock Screener Metric #3)

Now, onto the dividend growth history. In this comparison, we want to compare the longevity of each company's dividend increase and the company's average dividend growth rate.

Don't get me wrong, it is important for a company to increase its dividend. However, we also want to make sure the company is increasing its dividend at a rate greater than inflation. That way, our passive income stream will not lose purchasing power!

The chart below compares PG and JNJ's 5-year average dividend growth rates and consecutive annual dividend increases.

Both companies are dividend kings, as we have mentioned several times throughout this article. That metric is considered even in my opinion. The dividend growth rate is much more fascinating. The table above clearly shows that JNJ has a higher average dividend growth rate. PG shareholders have been plagued with low dividend growth over the last few years.

That changed in 2021 though. Earlier, we showed how PG's dividend increase was double Johnson & Johnson's. Because of this, I'm calling this metric a draw!

Winner: Draw

Dividend Yield

Last, but definitely not least, the dividend yield. Dividend yield is never the first metric we review. Why? We want to make sure the company checks the other boxes of our stock screener before looking at the yield. Yield should never drive an investment decision, as this could lead you to invest in a dividend that is not safe. Sure, a company could pay a 10% dividend. However, if the payout ratio is over 100%, it's likely that dividend will be cut in the future.

The following chart shows the dividend yields for PG and JNJ:

Winner: Draw

Conclusion: Winner - Johnson & Johnson

Let's tally the scorecards! Johnson & Johnson won two metrics outright while Procter & Gamble won one. The remaining three categories ended in a draw. The two metrics that Johnson & Johnson won in today's analysis are critical metrics as well. Their price-to-earnings ratio is lower and so is their dividend payout ratio. Both metrics are key components of our dividend stock screener, the tool we use to research all dividend stocks before we buy.

Both companies are great companies. Today though, we are raising the arm of Johnson & Johnson. The company is leaving the ring with the championship belt!

Going forward, I will continue to add 1 share of Johnson & Johnson to both my portfolio and my wife's dividend stock portfolio. We discuss the purchase strategy in the linked article.

What are your thoughts about the two companies? Do you prefer Johnson & Johnson or Procter & Gamble? Would you continue adding 1 share of Johnson & Johnson each week if you were me?

- Bert

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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