Stock Analysis Pollie-style – Johnson & Johnson (JNJ) – 2019
Nowadays with new all-time highs almost every week, it becomes more and more difficult to find good shares for reasonable prices. But not only new companies can be interested, my existing holdings can also be very interesting for the right price.
In my Vrijheid Fonds I not only have Dividend Aristocrats, but I also have Dividend Kings! The Dividend Kings are the best-of-the-best in dividend longevity. A Dividend King is a stock with 50 or more consecutive years of dividend increases. There are currently 27 Dividend Kings!!
I own a total of five Dividend Kings, and today I will dive into one of these Dividend Kings.
For my analysis I use a lot of data from the Internet and from the company itself. But most data I get from the famous CCC-list, which was created by David Fish and is now maintained by Justin Law.
The Dividend King I’m talking about is Johnson & Johnson.
This analysis is on Johnson & Johnson. (JNJ).
From Wikipedia: Johnson & Johnson is an American multinational corporation founded in 1886 that develops medical devices, pharmaceutical and consumer packaged goods. Its common stock is a component of the Dow Jones Industrial Average and the company is ranked No. 37 on the 2018 Fortune 500 list of the largest United States corporations by total revenue. The corporation includes some 250 subsidiary companies with operations in 60 countries and products sold in over 175 countries. A fun fact: Johnson & Johnson is the world’s largest independent biotech company by market cap ($346.1 B)
Can I explain this to a 10-year old? What Does This Company Do?
Many of Johnson & Johnson’s most recognizable brands can be found in our medicine cabinet, such as Listerine and Band-Aid. JNJmakes everything from baby products to personal hygiene products.
Dividend Aristocrat: JNJ is paying Dividend for 57 years in a row. It is therefore a Dividend Aristocrat on the CCC-list from David Fish! (No.11). J&J has been in operation for more than 130 years and has raised its dividend for 56 years in a row. So, they are more than a Dividend Aristocrat, they are a Dividend King! So, this is a certain Pass!
Dividend Yield > 2.5%: The dividend Yield of JNJ is 2.94%. This is above the industry average of 2.22%. It is also above their 5 years average (2.67%). The Yield is above the requirements of the Pollie-Code, and therefore it passes the second Pollie-code.
Dividend payout <70%: The dividend payout is roughly 63%. This is below the maximum ratio. This’s what a DGI wants. So also passed for this point.
DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 and 10 years are 6.6, 6.3, 6.4 and 7.0. With a 3-years average around 6% this looks very good! And it is above the requirements of the Pollie-code, so again it is a pass.
P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. JNJ has a current P/E ratio of 21. The industry average is 19. The P/E ratio is slightly above the industry average. The P/E ratio does not meet the requirements of the Pollie-Code; therefore, it is a fail.
EPS > 0: The EPS is 6.03. So, JNJ passes also the sixth metric of the Pollie-Code
ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 26.8%. This is above the requirements from the Pollie-Code. Therefore, it is a pass.
Market Cap. > 100M: No problem at this point. The Market cap. Is more than $ 340.060 Mil. You guested it already: Another pass.
Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 9.4. Because JNJ is an existing holding it is a pass on the Pollie-code.
Stock price 52wk high-25%: The 52 wk. high and low are: 145.92 and 118.51. This means that JNJ will be in my buying zone when the stock price is below 139.06 ((145.92-118.51)*0.75 + 118.51). At this moment JN is trading for $131.24. Therefore, it is another pass on the Pollie-Code.
Other Key Figures
Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for JNJ is 0.69.
Debt/Equity ratio: The Debt/Equity ratio of JNJ is around 0.48. This is nice and low. I really like these kinds of Debt/Equity ratios.
Net debt/Ebitda: The net debt to EBITDA ratio is a debt ratio that shows how many years it would take for a company to pay back its debt if net debt and EBITDA are held constant. If a company has more cash than debt, the ratio can be negative. This metric tells something about the health of the company. I like to see ratios below 3 and will be ecstatic with ratios below 1. The Net Debt/EBITDA ratio of JNJ is around 2.13. This is good.
When I look at my analysis, JNJ has passed 9 out of 10 requirements from the Pollie-code! This is great! JNJ only failed at the P/E-ratio. But hey, you have to pay for quality. And JNJ is quality.
There are very few certainties in the stock market, but one of them is that J&J will increase its dividend each year. The company has plenty of future growth, thanks to a strong pipeline and its recent acquisitions. If I look at this analysis, I’m still happy to be an owner of this company 😁. The dividend is well covered, and Johnson & Johnson is well positioned to continue its Dividend Kings membership.
Consistent earnings, pristine balance sheet, consistent cash flow, and steady profitability make JNJ a first-rate company. Of course, there is a risk with owning JNJ. The present talcum powder lawsuits are a drag on Johnson & Johnson, but looking at the great business they are in, they should be able to overcome this problem in the long term. This is partly reflected in the price. A P/E ratio below 20 would even better 😆. But with today’s stock prices it may present a buying opportunity for income investors. I will definitely leave JNJ on my watch list for some extra stocks in the (near) future. I love stocks good quality stocks with a nice dividend yield and a good DGR.
What are you – the readers, thoughts on Johnson & Johnson? Is it a buy, do you own it?
Please comment on my analysis and thanks for stopping by!
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