Evaluating Kenvue's 5.72% Yield in Light of Near-Term Risks and Long-Term Stability

The allure of a 5.72% dividend yield from Kenvue Inc. (NYSE: KVUE) has drawn investor attention, particularly in a low-yield environment. However, this high yield must be scrutinized through the lens of escalating legal and brand risks that threaten the company's financial stability. As Kenvue navigates lawsuits over its flagship product Tylenol and contends with reputational damage, the sustainability of its dividend becomes a critical question for income-focused investors.

Legal Challenges and Brand Reputation: A Dual Threat

Kenvue faces a high-stakes legal battle with the Texas Attorney General, who alleges the company and its former parent, Johnson & Johnson, concealed evidence linking prenatal Tylenol use to autism and ADHD, according to a MedWatch report. These claims, if proven, could erode consumer trust and trigger costly settlements. The lawsuit accuses Kenvue of violating consumer protection laws by promoting Tylenol as "safe" during pregnancy without disclosing potential risks, as detailed in a FinancialModelingPrep article. While Kenvue denies the allegations, citing "sound science," the reputational fallout is already evident: its stock price has fallen 2.95% in recent trading, reflecting market skepticism, the FinancialModelingPrep article noted.

Brand reputation, a cornerstone of Kenvue's success, is now under siege. Tylenol, a global leader in over-the-counter pain relief, has long been marketed as a trusted solution for pregnant women. The Texas lawsuit, coupled with broader regulatory scrutiny over acetaminophen's safety profile, risks undermining this trust. According to a Business of Fashion report, the litigation could force Kenvue to overhaul its advertising strategies and invest heavily in public relations to mitigate damage.

Financial Metrics: A Tenuous Dividend Payout

Kenvue's recent financial disclosures highlight a precarious balance sheet. The company increased its quarterly dividend to $0.2075 per share, an annualized yield of 5.5%, despite a dividend payout ratio of 112.16%-a figure that exceeds its net income and raises red flags about long-term sustainability, according to a MarketBeat filing. This aggressive payout comes as revenue declined 4.0% year-over-year in Q3 2025, and operating margins have weakened over the past five years, as reported in a GuruFocus article.

The Altman Z-Score of 1.89 further underscores financial stress, indicating a heightened risk of insolvency, the GuruFocus article also noted. With legal costs mounting and potential settlements looming, Kenvue may be forced to prioritize cash preservation over maintaining its dividend. Analysts at Johnson Rice have downgraded the stock to "Neutral," citing legal risks as a drag on profitability, the FinancialModelingPrep piece reported. Meanwhile, Citi and Evercore ISI have reduced price targets to $17 and $18, respectively, reflecting concerns about regulatory and reputational headwinds, according to a Yahoo Finance piece.

Strategic Moves and Analyst Outlooks

Kenvue's leadership has responded to these challenges by accelerating strategic divestitures, including the sale of underperforming skin health and beauty brands. These moves aim to streamline operations and focus on core products like Tylenol, Listerine, and Neutrogena, as discussed in a Simply Wall St analysis. However, the effectiveness of this strategy remains unproven. BofA and Rothschild & Co. Redburn maintain "Buy" ratings, arguing that the stock's post-selloff valuation offers compelling entry points, the Yahoo Finance piece argued. Conversely, bearish analysts warn that unresolved legal issues, particularly in the UK talc litigation, could further strain cash flow, the Simply Wall St analysis cautioned.

The upcoming Q3 2025 earnings report on November 6, 2025, will provide critical insights into Kenvue's financial health. Investors will scrutinize cash flow statements for signs of liquidity stress and look for updates on legal settlements. A conference call at 8:30 a.m. ET will offer management's perspective on navigating these challenges, as noted in a Kenvue press release.

Conclusion: Balancing Yield and Risk

Kenvue's 5.72% yield is undeniably attractive, but it comes with significant caveats. The company's legal and brand risks, coupled with a structurally unsound payout ratio, suggest that dividend sustainability is far from guaranteed. While strategic divestitures and a strong brand portfolio offer long-term potential, near-term uncertainties-particularly around the Texas lawsuit and regulatory scrutiny-demand caution. Investors seeking stable income should weigh these risks carefully and consider hedging their exposure until Kenvue demonstrates resilience in both its legal defense and financial stewardship.