Wednesday, February 4, 2015

Stock Purchase: JNJ

On 01/30/15, I purchased 20 shares of JNJ at $100.50.

Johnson & Johnson is one of the largest and most diversified health care firms, with products spanning across the pharmaceutical (43.5% of 2014 sales) and medical device industries (37.0%).  The company is also a major participant in the global consumer products business (19.5%).  Johnson & Johnson has over 250 operating companies selling products across the world. Despite its size, JNJ is highly innovative and seeks to maintain leadership positions by aggressively funding new product development.

Purchase criteria check list

JNJ is one of the Dividend Champions, with 52 consecutive years of higher dividends.

S&P Capital IQ rating is A+ for this company.  S&P analysts' risk rating for this company is LOW, with these comments, "Our risk assessment for JNJ reflects our belief that its products are largely immune from economic cycles, that it does not rely on any single product category or customer for sustained growth, and that it enjoys competitive advantages owing to its substantial financial resources, business scale and global sales capabilities."  Morning Star granted it a 3-star rating.

JNJ's dividend yield is 2.80% (annual dividend payment is $2.80, and the calculation is based on my purchase price at $100.50.)  This dividend yield 2.80% is lower than the 3% criterion. But considering its reasonable to high annual dividend growth rate, I give it a pass to this stock.



JNJ's 10-year DGR averaged at 9.53%.  Its average DGR in the past 45 years (1970 - 2014) is 15%.  JNJ tends to have some faster DGR years at double digits growth rates and then followed with some single digit DGRs.  For example, its last 10-year DGR average is around 10%, while the pace has been slowed since 2009, with recent 5-year average at 7.42%.

The Chowder number is based on the sum of current yield and (5-year) dividend growth rate, so JNJ's number is lower than 12% criterion, due to above mentioned slower DGR in recent years.

JNJ's EPS & FCF are absolutely healthy and uptrend.  JNJ has plenty of free cash, and in some years, its FCF is even higher than EPS.  Consequently, JNJ's debt to equity ratio is very low, at 18%.  I like the stable but uptrend pace that JNJ grows its dividend.  Investors have a whole lot of confidence in the management of this company.  Not like Helmerich & Payne, Inc., whose sudden jerk of dividend growth kind of worried investors.

JNJ's fair price is $110. I bought at $100.50, with 8.6% price discount.  For references, S&P Capital IQ calculated JNJ's fair value at $100.80, with 12-month target price at $112.  Yahoo finance gave it 1-year target at $109.72.

Disclosure:  Long JNJ.  Plan to write puts on this company.  Will update later if the puts go through.

2 comments:

  1. Like the written puts on a quality blue chip. Very raptoresque move! Let us know what implied annualized yield you get.

    ReplyDelete
  2. Hi FV, thanks for stopping by. I'll definitely update later if the puts go through.

    ReplyDelete