To adapt the words of Estelle Constanza upon being served merlot, Kenvue? Never heard of it. Is it new?
Kenvue (KVUEO). like merlot, isn’t exactly new. As a stand-alone stock, Kenvue dates back only to May 2023, but the company is a spin off of Johnson & Johnson’s (JNJ) consumer division. The owner of household consumer names that include Tylenol, Nicorette, Listerine, and Zyrtec, Kenvue is the world’s largest pure-play consumer health company by sales. The stock closed on September 5 with a yield of 3.64%. Morningstar calculates that the shares are 16% undervalued and puts a $26 target price on the shares. The stock closed at $22.51 on September 5.
I’m adding the stock to my Dividend Portfolio tomorrow. With the Federal Reserve extremely like to begin cutting interest rates at its September 18 meeting, a lot of investors are looking for higher yield with slid safety. I think Kenvue offers exactly that combination.
Five of Kenvue’s brands–generate over $1 billion in annual sales: Johnson’s, Neutrogena, Listerine, Tylenol, and Aveeno. That gives the company the cash to fund R&D to extend the reach of its brand and to develop new prodcts–Morningstar estimates long-term R&D spending at 3% of revenue. And the market clout to assure advantages in distribution and to lower costs using economies of scale. Morningstar projects a mid-single-digit five-year compound annual growth rate for sales and that operating margin will reach slightly over 20% by 2028.
Before the spinoff Johnson & Johnson’s consumer segment faced serious litigation around Johnson’s baby powder. Plaintiffs argued that talc, the product’s main ingredient, caused cancer. In April 2023, J&J agreed to pay $8.9 billion with the settlement to be paid out over 25 years. The company has discontinued all talc-based Johnson’s powder and replaced it with cornstarch-based powder. Any future talc-related litigation will be fully handled by J&J with no impact on Kenvue.
Kenvue, or more accurately Johnson & Johnson, is a Dividend Aristocrat, meaning that the company has raised its dividend for 25 consecutive years. Or more–62 years in this case.
