Johnson & Johnson Splitting Into Two: What's the Story for Stock?

On Nov. 12, Johnson & Johnson announced plans to split its business into two publicly traded companies.

One business will take on the consumer goods side of the J&J business — that includes everything from Tylenol and Benadryl to Band-Aids and Lubriderm. The other business will take on J&J's medical device and pharmaceutical product lines.

It's a move that makes a lot of business sense. J&J's pharmaceutical business has grown by 9.2% in the past five years, making it the revenue jewel of the company crown. Obviously, there's a reason to concentrate on this part of the business in the future.

But what's good for pharmaceutical and medical device R&D, marketing, and sales isn't always good for the consumer goods side of the business. Peeling consumer goods off into its own company frees it up for processes that work better for those lines.

What does all this mean for shareholders or for investors interested in the fairly stable stock that is JNJ? First, investors don't have to act super fast. JNJ isn't planning to make the split final for almost two years.

Second, investors that hold JNJ shares at the time the company splits will hold shares in both companies. The total dividends are expected to be roughly equal to what would have paid out for the single stock.

The divide puts more flexibility in investor hands — those that want to bet on J&J pharmaceutical only can divest stock for the consumer company, and vice versa. Investors that don't already hold the stock can decide to purchase shares in one of the businesses or both, depending on what the market is doing.

While JNJ values are likely to bounce a bit with this news, the upcoming split isn't a definitive reason to dump shares at this time.