Is this S&P 500 stock a once-in-a-decade passive income opportunity?

The S&P 500 has recovered from its volatile start to the year and is within touching distance of its record highs. At the same time, some quality shares are trading at exceptionally low prices.

One example is Johnson & Johnson (NYSE:JNJ). As a rule, I stay away from pharmaceutical stocks, but I’m considering making a rare exception for this one. 

Pharmaceuticals

Johnson & Johnson has recently divested its consumer products business. The company now generates around 66% of its revenues from pharmaceuticals and 33% from medical devices.

The main reason I generally stay away from stocks like this is I don’t feel like I can evaluate them accurately. I’m not a medical professional and that means I can’t confidently evaluate drug pipelines. 

That makes it hard to work out which businesses have the best prospects. And in fairness to me, it’s not always straightforward even for people who do have specialist expertise in this sector. 

Johnson & Johnson does have some competitive strengths in this area – most notably its scale and its exceptional balance sheet. But there’s something else that stands out to me about the company.

Credo

A key part of what makes Johnson & Johnson unique is its culture. And this is set out in the ‘Credo’ – a document, which states that the company’s priorities are, in order:

1. Doctors, patients, nurses, and users of its products
2. Employees
3. Communities
4. Shareholders

In other words, focus on putting customers first and doing the right thing and the returns will follow. This ethical outlook is a key part of what has allowed the business to survive and thrive over decades. 

A lot of businesses have codes of conduct or ethical frameworks. But there’s evidence that Johnson & Johnson’s Credo means its culture is more entrenched than it is at other companies.

The firm’s reaction to the 1982 Tylenol crisis is now a well-known case study in ethical leadership. And it doesn’t take specialist medical knowledge to appreciate the significance of this.

A once-in-a-decade opportunity

Right now, shares in Johnson & Johnson come with a dividend yield of around 3.25%. That doesn’t exactly jump out as a passive income opportunity, but it’s the highest it has been in the last 10 years.

This is a sign investors are unusually pessimistic about a stock they normally hold in high regard. And a key reason for this is the situation in the US at the moment. 

The situation is still developing, but potential risks include slower drug approval processes and price controls. Neither of these would be good for companies like Johnson & Johnson. 

The risk is real, but this might be the kind of opportunity that comes around once in a decade. Given the company’s long-term strengths, I think it’s worth taking seriously.

Culture

I think Johnson & Johnson’s biggest unique strength is its culture. Even if I’m wrong, there’s clearly a lot to like about a company that has more than 50 years of consecutive dividend increases. 

Most of the time, the stock market appreciates the quality of the business. But it’s unusually cheap at the moment and on that basis, it’s certainly one to consider right now.