I’m in the process of evaluating several stocks to be added to my Investment Hunting portfolio. I am doing so because I am changing jobs in the next few weeks and rolling my 401k over to an IRA. I will be buying $100k plus of stock. Because of this I have created a list of new stocks to purchase and existing stocks I currently own that I may purchase more shares of. I have a small position with JNJ now, but I will be buying at least $10,000 worth of shares in the next few weeks. To learn more see my post, My Dividend Investor Dilemma.
An Overview of JNJ
Founded in 1886 in New Brunswick, New Jersey, JNJ has grown to become a leader in the health care industry. The JNJ company structure is in research and development, manufacturing and selling a vast array of drugs, surgical supplies and general health maintenance products. JNJ operates three business segments: Consumer, Pharmaceutical, Medical Devices and Diagnostics. JNJ has an international presence with more than 250 companies operating in 60 countries.
JNJ Historical Highlights
- 1888 – Created the first commercial first aid kits, which were designed to care for injured rail workers
- 1898 – Released first mass-produced dental floss
- 1901 – Publishes first consumer first aid guides and packages guides with first aid kits
- 1921 – Employee Earle Dickson invents an adhesive bandage and in 1921, the BAND-AID was born
- 1954 – JOHNSON’S Baby Shampoo with NO MORE TEARS is introduced to the consumer market
- 1959 – Aquired McNeil Laboratories and takes McNeil’s TYLENOL brand to the consumer market in 1960
- 1987 – First to market with disposable contact lenses labeled under the ACUVUE brand
- 1994 – Invents the PALMAZ-SCHATZ stent, which is the first coronary stent
Please note – I selected a handful of examples of the JNJ significant product releases. Being around more than 125 years, JNJ has invented or enhanced thousands of products.
A few more significant dates: In 1924 – JNJ goes international by opening a company in the UK. In 1944, JNJ goes public on the NYSE.
Why I Am Buying JNJ
I am a Dividend Growth Investor and I believe JNJ is a fantastic stock to hold in a DGI portfolio. I look to invest in companies with strong management fundamentals, low payout ratios, growing revenue, economic moats and low debt; JNJ satisfies all of these. It really is hard to argue with past history. JNJ is on a 31 consecutive year run of adjusted earnings increases. JNJ has paid and increased dividends for 52 consecutive years. That’s right, this company has been paying and raising dividends since 10 years before I entered this world. I like my DGI odds with JNJ. More on the economic moat of JNJ. By owning a piece of the entire supply chain in multiple health care disciplines, JNJ is set up to not suffer great losses due to market trends. If one section of the sector is down, another is hopefully up and if not up, at least stable.
Dividend Growth Rate And Yield
- 3-Year Dividend Growth Rate – 7%
- 5-Year Dividend Growth Rate – 7.4%
- 10-Year Dividend Growth Rate – 9.7%
- Annual Dividend Yield – 2.79%
- Annual Dividend Per Share Rate – $2.80
- 5-Year Dividend Per Share Average – $2.42
How Much Is The Stock Worth
The P/E Ratio is higher than I usually look for when evaluating new positions for my Investment Hunting portfolio. The current Johnson And Johnson P/E Ratio (TTM) is 17.89. The JNJ P/E is slightly lower than the S&P 500 Index which averages 18.87, and much lower than U.S. Healthcare companies who average 32.85.
A recent Johnson And Johnsonstock sell-off has created a buyers opportunity at a fair stock price. Many investors sold JNJ stock on Q4 earnings and guidance for the first part of 2015. This created a dip in stock price, which indicates a buy to me. I have no illusions, I know that 2015 could be an off-year for Johnson And Johnson, however as a DGI investor I don’t let a 1-year outlook interfere with a long-term value opportunity.
Some, but not all analyst think that Johnson And Johnson stock is undervalued. Credit Suisse lists a 12-month price target at $110, Argus at $116, and Capital IQ at $120.
Earnings Per Share and Sales Growth
- 1-year EPS Growth – 18.55%
- 5-year EPS Growth – 5.32%
- 1-Year Sales Growth – 4.23%
- 5-Year Sales Growth – 3.73%
Other Key Metrics
- Dividend Payout Ratio (TTM) – 35.56%
- Gross Profit Margin – 69.40%
- Operating Profit Margin – 27.66%
- Net Profit Margin – 21.96%
- Cash Flow Per Share (TTM) – $5.84
All investing comes with risk. JNJ faces two mid-term threats and one long-term threat.
- Foreign Exchange – A strong U.S. Dollar could lead to lower international sales and revenue
- Litigation – The company is currently settling lawsuits for Risperdal, surgical mesh products, and metal-on-metal hip and knee implants
- Growing generic drug competition
Risk one could will likely hurt all U.S. companies with an international presence. Risk two is part of doing business in the health care sector. Risk three will hurt all Pharmaceutical companies who participate in new drug launches. Johnson & Johnson needs to ensure they have a strong product pipeline and sequence patent expiration appropriately.
Johnson & Johnson has a long history of generating results for investors. Johnson & Johnson management keeps investors in mind. In fact, investors are listed in the Johnson & Johnson company credo where management acknowledges that they have a responsibility to return a fair value to investors. I do not see a reason why the future of Johnson & Johnson will not follow the past. The company is dedicated to serving healthcare professionals, consumers and investors. Johnson & Johnson has created a massive moat, which should shelter the company during lean years. I intend to buy and hold Johnson & Johnson stock for the long haul.
What is you opinion of JNJ? Do you think Johnson & Johnson will be able to continue to increase dividends?
Full Disclosure: Long JNJ.
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