This is an analysis completed by The Dividend Guy. It is not to be used as investment advice or a recommendation to buy, hold, or sell any stocks discussed. Please ensure you complete your own analysis.
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Johnson & Johnson is the quintessential dividend growth stock and it was a pleasure to run my dividend analysis on it. It has a huge history of very strong dividend growth and the fundamentals are strong.
I have recently refined my dividend analysis process as I often do to make it more powerful (IMHO). I have added an expected return value which is one of the metrics my CSA software provides me. It has allowed me to further filter the fundamental aspects of the stocks on my watch list. This changes the total score a company can receive during my analysis at 15, as opposed to 14 which it has been.
I have also changed my scoring to add some additional weight to my target price. I think this was important as valuation is a crucial component to any purchase decision I make. So, in essence if a stock has strong fundamentals, including passing some valuation metrics (P/E, yield, etc.) but does not fit into my target price then it will not show up on my watch list as a High stock. With that in mind, here is my analysis of Johnson & Johnson.
The Company: Johnson & Johnson (JNJ-N)
Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. The company’s worldwide business is divided into three segments: Consumer; Pharmaceutical; and Professional.
| Yes | |
| Yes |
THE FUNDAMENTALS
Revenue
Click to EnlargeRevenue Scoring
| Criteria | Scoring |
| Consistenly Up with No Down Years | 1.0 |
| Up Trend with Less Than 2 Down Years | 0.5 |
| Choppy with Greater Than 2 Down Years | 0.0 |
| My Revenue Score | 1.0 out of 1.0 |
Earnings Per Share
Click to EnlargeEarnings Per Share Scoring
| Criteria | Scoring |
| Consistenly Up with No Down Years | 1.0 |
| Up Trend with Less Than 2 Down Years | 0.5 |
| Choppy with Greater Than 2 Down Years | 0.0 |
| My EPS Score | 1.0 out of 1.0 |
TOTAL FUNDAMENTALS SCORE: 2.0 out of 2.0
THE RATIOS
Return on Equity
Click to EnlargeReturn on Equity Scoring
| Criteria | Scoring |
| Above 15% for Last 5 Years | 1.0 |
| At Least One Year Below 15% in Last 5 Years | 0.0 |
| My ROE Score | 1.0 out of 1.0 |
Other Ratios
| Ratio | Criteria | Value | Score (Pass=1 / Fail = 0) |
| Debt to Equity | Less Than 0.50 | 0.25 | 1.0 |
| Payout Ratio | Less Than 60% | 42% | 1.0 |
| Credit Rating | BBB+ | AAA | 1.0 |
| Total Ratio Score | 3.0 out of 3.0 |
TOTAL RATIOS SCORE: 4.0 out of 4.0
DIVIDEND DATA
Annual Dividends
Click to EnlargeDividend Scoring
| Criteria | Scoring |
| 10+ Years of Dividend Growth | 1.0 |
| Less Than 10 Years of Dividend Growth | 0.0 |
| My Dividend Growth Score | 1.0 out of 1.0 |
TOTAL DIVIDEND GROWTH SCORE: 1.0 out of 1.0
STOCK VALUATION
| Valuation Metric | Criteria | Value | Score (Pass=1 / Fail = 0) |
| Dividend Yield | Cur Yld Greater Than 10 Yr Avg Yld | 1.8% | 1.0 |
| Div Yld Compared to SPY Div Yld | Cur Yld Greater Than SPY Yld | 1.8% | 1.0 |
| P/E Ratio | Cur P/E Less Than 10 Yr Avg P/E | 22.5 | 1.0 |
| Relative P/E | Relative P/E Less Than 1.0 | 0.67 | 1.0 |
| Price to Sales | Less Than 1.5 | 3.00 | 0.0 |
| Total Ratio Valuation Score | 4.0 out of 5.0 |
Expected Return
| Criteria | Scoring |
| Expected Return Score Greater Than 10% | 10.4% |
| Expected Return Score Less Than 10% | 0.0 |
| My Expected Return Score | 1.0 out of 1.0 |
TOTAL STOCK VALUATION SCORE: 5.0 out of 6.0
TARGET PRICE
Canadian Shareowner’s Association Stock Selection Guide Software Buy Price
| Buy Zone |
Maybe Zone |
Sell Zone |
Current Price | Rating | Scoring (Buy=1.0, Other=0.0) |
| 2.0 |
TOTAL TARGET PRICE SCORE: 2.0 out of 2.0
SUMMARY
Points Earned:
14 out of 15 – half points are rounded down to be conservative
The stock is rated HIGH with 14 points earned through my analysis of the stock. It is rare to find such a strong stock – revenue, EPS, valuation – all the metrics seem to line up. In addition, the future prospects of the stock look strong in my opinion. I have entered a buy order for this stock and it will show up in my portfolio shortly.
| Rating | Points Required |
| High | 13+ points |
| Medium | 10-12 points |
| Low | Less Than 10 points |
Reminder: This is an analysis completed by The Dividend Guy. It is not to be used as investment advice or a recommendation to buy, hold, or sell any stocks discussed. Please ensure you complete your own analysis.
The Dividend Guy does not own shares in JNJ – yet
Great article,
I wish they had a direct purchase plan but they don’t at this time.
They do offer a DRIP program and if you own shares in your name not street name you can make additional purchases. The great thing about that is JNJ is one of the companies that will pay your fees when you make additional purchases, that way you can keep your per share cost down.
Well done. JNJ is certainly one of my favorite dividend stocks.
Best Wishes,
D4L
I don’t think that I could think of a better combination of growing dividends and a pristine balance sheet than JNJ. This is a great core holding to any portfolio. Great analysis!