Should You Invest in This Dividend King on the Dip?

Earnings season is underway, and it has already made some winners and losers. One company that seems to be in the latter category is Johnson & Johnson (NYSE:JNJ). The healthcare giant had been performing well this year, but its shares dipped significantly after it reported its third-quarter financial results. Is this a buying opportunity? Or should investors run for the hills? Let's find out.

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Johnson & Johnson's results were strong, mostly

At first glance, Johnson & Johnson's latest quarterly update looked robust. In fact, it was a beat-and-raise quarter for the healthcare leader. Revenue came in at $25.4 billion, 5.9% higher than the year-ago period. Johnson & Johnson's adjusted earnings per share (EPS) were $2.59, down 7.5% compared to the prior-year quarter. The decline was mostly due to the impact of acquisitions and was expected, so it's nothing investors should worry about too much.

Johnson & Johnson's innovative medicine segment performed especially well. It recorded sales of $16.8 billion, up 7.7% year over year. Several of Johnson & Johnson's key products contributed. For instance, Darzalex, a cancer medicine, posted sales of $4.2 billion, 15.4% higher than the year-ago period.

Johnson & Johnson's Tremfya, which treats several autoimmune conditions, generated $2.4 billion in sales, up 68.3% from the prior-year quarter. Several of Johnson & Johnson's medicines are posting declining sales due to competition (biosimilar or otherwise) and other headwinds. The list includes Imbruvica, a cancer drug, and Remicade, an immunology medicine.

But Johnson & Johnson's main growth drivers in this segment are more than making up for that. It's part of the reason why the company once again slightly increased its guidance for the full fiscal year 2026 (it also did so when it reported its second-quarter results). Johnson & Johnson now expects operational sales of $100.7 billion at the midpoint, versus the previous guidance of $100.6 billion.

However, Johnson & Johnson's medtech business did not perform in line with expectations during the period. The company reported medtech revenue of $8.6 billion, 2.5% higher than the prior-year quarter. Weakness in this segment is the main reason why the stock dipped post-earnings. Even the company's management noted that its medtech performance was below its own standards.

Focusing on the bigger picture

Johnson & Johnson pointed out that its medtech performance in the U.S., its most important market, was strong. U.S. revenue year-over-year growth was almost 5%. However, the company's cardiovascular unit faced headwinds, particularly abroad, due to safety and efficacy concerns regarding its Impella heart pumps. Johnson & Johnson is running a clinical trial that it hopes will demonstrate the effectiveness of this device.

Provided the study is successful, it could help the company overcome recent challenges. But even if it doesn't, my view is that investors should stick with the stock for the long haul. Here are three reasons why. First, the company's pharmaceutical segment is performing extremely well and could continue doing so over the medium term.

In addition to its current set of growth drivers, Johnson & Johnson has launched important medicines in recent years that will help sustain healthy pharmaceutical sales growth. For instance, earlier this year, Johnson & Johnson earned approval for ICOTYDE, a medicine for plaque psoriasis.

Icotyde's approval was significant for Johnson & Johnson because it introduced the first oral IL-23 receptor antagonist (a drug that blocks a receptor involved in inflammation), offering patients a convenient, once-daily alternative to injectable therapies for plaque psoriasis.

Imaavy, a medicine for Generalized Myasthenia Gravis and Warm Autoimmune Hemolytic Anemia (it was the first medicine approved for the latter disease), is another important new launch that could be a meaningful growth driver over the medium term. Second, Johnson & Johnson's medtech segment should improve, even if the issues surrounding Impella don't subside.

The company has earned authorization for the Ottava, a robotic-assisted surgery device, an area with significant white space. Third, Johnson & Johnson remains an excellent dividend stock. The company is on a streak of 64 consecutive annual payout increases, making it a Dividend King (a company with 50 or more years of straight dividend increases). These factors make Johnson & Johnson an attractive stock to buy.

Prosper Junior Bakiny has positions in Johnson & Johnson. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.