Founded in New Jersey in 1886, Johnson & Johnson (JNJ) has grown into one of the largest companies in the world. It employs 128,000 people across 275 operating companies. The company is a leader in the pharmaceutical, medical device and consumer products industries.
JNJ is a Dividend Champion with an impressive 51-year streak of dividend increases. It pays quarterly dividends in March, June, September, and December. My starting Yield on Cost is 3.03%.
Not accounting for dividends, JNJ essentially matched the performance of the S&P 500 over the last 10 years:
The following chart shows JNJ's dividend payments and earnings per share over the last 10 years. JNJ has grown its dividend steadily and the trend for earnings per share similarly is up:
Analysis of JNJ
Available fair value estimates for JNJ range from $71.07 (Dividend Discount Model) to $99 (Zacks Investment Research). JNJ trades at a discount of 2.46% to the median of available estimates.
The following table provides some key statistics for JNJ:
JNJ does not quite meet the requirements of the Chowder Dividend Rule, which requires that the sum of a stock's dividend yield and its 5-year dividend growth rate exceed 12%. For JNJ, the sum is 10.59%. Additionally, JNJ falls short of the following of my selection criteria:
- EPS% payout < 40% (55%) or FCF% payout < 50% (n/a)
- Price/Earnings to Growth (PEG) ratio < 2 (3.11)
- 5-year dividend growth rate is at least 10% (7.61%)
- Price discount is at least 5% of fair value (2.46%)
Based on these statistics, JNJ earns 5 stars out of a possible 7: (*******)
Other ratings for JNJ
JNJ is my second holding in the Health Care sector (Baxter International Inc. (BAX) is the other).
Like my previous purchase (Altria Group Inc. (MO)), JNJ is a popular stock in many dividend growth portfolios. With its 51 year history of paying ever-increasing dividends, JNJ is a stalwart of dividend growth portfolios. I've been waiting a while for JNJ to trade at a discount to fair value, so I'm happy with the buy.
JNJ is experiencing competition from generic products as periods of exclusivity expire. Also, JNJ is subject to FDA regulations and decrees, which could limit sales and restrict manufacturing. Pipeline setbacks, including the failure to gain approval for new drugs or the discontinuation of drug trials, could impact future growth prospects.
The good news is that JNJ has many candidates in final stages of drug trials. Its deep pipeline should translate into successful commercialization and eventually boost the top line. JNJ expects new products to account for almost 50% of total pharmaceutical sales by 2017. The company is also eyeing emerging markets as they offer immense growth potential. It is setting up manufacturing and R&D centers in Brazil, India and China and working to strengthen its pipeline in Japan.
30 shares of JNJ represent $79.20 of expected annual dividend income, which increases DivGro's projected annual dividend income to $3,105.78.
JNJ is the 26th dividend stock purchase for DivGro.
Full Disclosure: Long BAX, JNJ, MO