Johnson & Johnson | Fundamental Analysis | MUST READ ⚡️

The world's largest health care company is about to get a little smaller. Johnson & Johnson recently told investors that it intends to spin off its consumer health products business into a separate new company.

If you've been considering these dividend-paying stocks for one reason or another, there's nothing wrong with the impending split. In fact, it makes the stock much more attractive. Here's a closer look at the company's plans so you can see why.

Johnson & Johnson is a huge conglomerate with more than a hundred separate subsidiaries divided into three operating segments: pharmaceuticals, medical devices, and consumer health. Janssen, the company's pharmaceutical business, is the largest and fastest-growing of its subsidiaries. Pharmaceutical sales growth is outpacing the diverse medical devices segment, but the company wants to keep the two segments together. That's because convincing doctors to order knee replacement devices is not that much different than convincing doctors to prescribe a new cancer treatment.

Johnson & Johnson practically created the consumer health care business more than 130 years ago, so at first, its division will seem strange. However, when the dust settles, the separation will likely benefit investors.

The consumer healthcare segment is expected to generate about $15 billion in revenues in 2021, about 7 percent more than in 2020. The as-yet-unnamed new consumer health drug company will start with 20 different brands with annual sales of more than $150 million.

The 7% growth rate that J&J expects this year in terms of underlying revenue for the consumer health segment is pretty good. Unfortunately, the comparison to 2020, when people made significantly fewer purchases, is a bit misleading.

Not surprisingly, Johnson & Johnson wants to focus on pharmaceutical sales. Over the past five years, pharmaceutical sales have grown at an impressive rate of 9.2 percent a year. Over the same period, the company's other two segments have struggled to keep moving in the right direction.

Revenue from the high-margin pharmaceutical segment also had a much stronger impact on the bottom line. In the third quarter, adjusted pre-tax income from the pharmaceutical segment was $5.7 billion. Pre-tax earnings from medical devices and consumer healthcare were $1.7 billion and $0.9 billion, respectively.

If you're interested in buying Johnson & Johnson stock before it transforms into two companies, you have plenty of time to think it through. The company plans to complete the planned spin-off in 18 to 24 months.

Shares of both new companies will initially have smaller payouts, but don't let that worry you. Dividend payments on both new shares are expected to be the same amount that shareholders will receive before the split.

At recent prices, Johnson & Johnson stock offers an attractive yield of 3.1 percent, and investors can expect much higher returns on their initial investment in the future. The company is a dividend aristocrat that has not had a single year without a payout increase since the Kennedy administration.

Johnson & Johnson's dividend program stands on such a solid foundation that steady increases in the coming years should not be a problem. Over the past 12 months, the company has used just 42% of the free cash flow generated by operations to pay dividends.

It should be noted that these dividend-paying medical company stocks may not be suitable for every investor, especially those who are willing to take high risks in exchange for the chance to make huge profits. While it is unlikely that Johnson & Johnson will far outperform the broad market, investors can reasonably expect two steadily increasing dividend payments for years to come.