Phew… almost thought for a minute or a month there, that I may go a full 30 days without a right on stock purchase. Well, I guess I couldn’t hold back for 30 days and have made a new stock purchase! Always having tricks up my sleeve and am able to make a move on Thursday of this last week, which is great, even if it wasn’t a large investment. However, it was a NEW investment to my portfolio, let’s take a look at who I was able to scoop up!
JNJ – The Stock
Johnson & Johnson (JNJ) is a $280B+ market capitalization company, giant status. And per MorningStar – “Johnson & Johnson is a holding company, which is engaged in the research and development, manufacture and sale of products in the health care field within its Consumer, Pharmaceutical and Medical Devices, and Diagnostics business segments.” We all own, have used or seen their products – Band-Aid, Neutrogena, their soaps/shampoos (you remember… “no more tears…”), Neosporin, Aveeno, Rogaine (Not yet for me at least), Listerine, Tylenol, Splenda – the list TRULY goes on for this company. A different consumer health care company that I really did not have a segment in my portfolio with my other health care product companies in GSK and Pfizer. Guess what? They are a dividend aristocrat and are a foundation stock for building your portfolio – having increased their dividend every year for over 52 years! That is almost twice my age, Hot. Damn. Here are quick metrics that I am using for the analysis on my JNJ stock purchase:
Dividend – Pre-Thursday news (I bought Thursday morning because I knew they increased their dividend every 4th Thursday in April ; ) ) was at $2.80 for the year. EPS I am using is an analyst projected $6.13. Ending 2014 price was at $104.57 with a great share buy back program, repurchasing over $7B in stock during 2014 alone, similar to how IBM plows down the shares. Why did I invest into them? Let’s check this out.
JNJ – The Stock Purchase Analysis
Well, we will be using quite a few metrics from the Dividend Diplomat Stock Screener and a few other attributes that I have been tossing in, similar to my analysis at Norfolk earlier this month. Let’s see what the screen came with:
1. P/E – Well, based on EPS expectations this year of $6.13, the price to earnings at time of my purchase price, which was $100.11, equates to 16.33. This compares favorably to the approximate 20 in the S&P as a whole, and MorningStar has shown the industry at approximately 24. I liked the P/E ratio here given the opportunities out there. Price at Friday’s close was $101.08 or 16.49 – therefore, I still am considering at more to my current holding, big time.
2. Payout Ratio – Ah.. the beloved payout ratio. Which shows much of their earnings a company pays in the form of dividends to shareholders. We like it usually above 20% and below 60% when finding a company to invest into – which shows the company likes to retain it’s earnings but also wants to give portions of it back. With a dividend, pre-increase, at $2.80, the payout equals 46%, well below the threshold. However, this is a phenomenal company who has one of the best track records of increasing their dividend. JNJ increased their dividend hours after my purchase by 7.14% to $3.00 per year. This then increased the payout ratio to 49%, which is still well below the 60% threshold and shows the company has the ability to continue to raise and pay dividends. Perfect, thank you JNJ!
3. Dividend Growth – One of my favorite topics is the dividend growth rate. Well to start, JNJ does grow their dividend and it is fairly constant/predictable. The 5 year dividend growth rate is 7.41% and… drum roll… the 3 year dividend growth rate is 7.09%, which is fairly similar and aligns very well with their recent 7.14% increase on Thursday the 23rd. The smallest increase I’ve seen recently was in 2011 where the increase was only 5.55%, which still beats PG’s most recent 3% bump. I’m digging JNJ right now. 7% dividend growth rate with an approximate 3% yield is a total bang of 10% combined. Not too shabby. This was one of the first stocks I bought for my mom when I took over her investment account and the value has doubled, with her Yield on Cost or (YOC) now at 5.64%. I can see how over time/life, JNJ will continue to be very valuable.
4. Dividend Yield – Alright, well this definitely is important, especially as a dividend investor. The yield at the time of purchase based on the old dividend amount was actually 2.80%. With the increase to $3.00 per year for the day of purchase, moved that to a solid 3.00%. This is at least 1% above where the market trades at, is lower than my dividend yield over all, but feel that it is one of the foundation stocks for dividend investors that I did not own yet. I like the yield and I can only be excited for the direction the yield is going.
5. Dividend 5 year Average – Plain and simple – the stock yields 3.00% now and JNJ’s 5 year yield average is 3.00%. It’s fairly spot on and as the stock goes up, the dividend follows suit. Very in line. I’m actually okay with this, even though I do love comparing the yield to the 5 year yield average to find further undervaluation.
6. Share Buy Back – Uh oh, the big news for investors. JNJ in 2014 repurchased back over $7B with of stock! Is that all they’ve done? Nope. $3.5B repurchased in 2013 and an insanely high $12.9B in 2012. 2013’s dividend growth was 8.2% and 2012’s was at 7.02%; no real correlation but it does allow a reduction of shares, increase in EPS and easier dividend growth. I can dig it. They still have room to repurchase more, as according to their 10-K report, “On July 21, 2014, the Company announced that its Board of Directors approved a share repurchase program, authorizing the Company to purchase up to $5.0 billion of the Company’s shares of common stock. As of December 28, 2014, $3.5 billion has been repurchased under the program” At least $1.5B to go, continue to make those moves JNJ – maybe another announcement for a program will come during the 3rd quarter again. We’ll see.
7. History – JNJ has increased dividend for 52 consecutive years and I don’t feel that is ever going to slow. With a 5 year historical payout ratio at 56%, there is still room to grow if earnings stay constant, but I don’t feel like that’s the case, given their history. You would have over tripled your investment over the last 15 years without even thinking of dividend reinvestment. This is just a great historical company.
Obviously – I couldn’t let Bert continue to do his thing and keep purchasing stocks with me sitting on the sidelines, with his recent addition of ADM. I need to try and continue to outpace Bert in the contribution category… haha, I’m trying to continue to push you Bert, which I think I can see you killing it so far this year. With a P/E below the average market and industry, with an above average yield, great payout ratio and one of the best track records for dividend growth, well, it was a matter of time that I was going to start making my purchases into this company.
Stock Purchase Summary
I deployed a total capital amount of $707.72 buying 7 shares (with a fee) and added $21 to my forward looking dividend income. I’m very pumped to add a foundation stock to my portfolio, even if I am 4+ years into my investing career. Of course – I am excited to add that amount as it allows me to reach closer and closer to my goals for 2015. I will look to add to my position further, maybe even before the month is up to avoid any price appreciation from the dividend increase announcement.
What does the community think of this purchase? I think a valid question is, who doesn’t own this stock? Or – are you adding to your portfolio positions for JNJ right now? Like the dividend increase? Appreciate your thoughts and feedback. As always – thank you for stopping by and talk soon! Long live the dividends!