As I previously mentioned, I had sent my papers to open my Quest Trade Account. Why Quest Trade? Because I live in Canada and it’s probably one the cheapest and most flexible trading platforms for Canadians. The account is not officially opened yet (they have yet processed the brick of paper I sent last week) but I am ready to make my first move (I just don’t know when I will buy!).
I will post a monthly update following my performance and new stock picks. The plan is to transfer $500 per month into the account and trade every 2 months (a minimum of $1,000 per trade is required by Quest Trade). So at the end of the year, I should have 5-6 stocks in my portfolio (and hopefully show positive returns!).
First Dividend Stock Pick: Johnson & Johnson (JNJ)
As my first dividend stock pick in this portfolio, I will take Johnson & Johnson. This is a very well diversified company that has shown its reliability over time.
Low PE Ratio
JNJ stock looks too good to be true. As of September 14th, its P/E ratio was at 12.58 and paying a 3.55% dividend yield. Such a low valuation for this high quality stock has not been seen since 1994 (while interest rates were hiking in the States). We can then expect to see the stock rise in the future, once investor confidence in the markets and the US economy has recovered.
In fact, it would not be surprising to see JNJ going back to $66 in a few months if we can be spared more economic bad news.
No wonder why JNJ, as the company, has been a dividend aristocrat for so many years, as of July 2010; had 18,9G$ in liquidity. This is more than enough to do 2 things that we love as investors:
#1 buy back shares (which has been done massively (10G$) since 2007)
#2 increase its dividend (we will get to this point later on).
The company’s ability to create positive cash flow month after month results in a huge reserve for “the rough patches”. Since JNJ evolves in the consumer, non-cyclical sector, you can bet that the “bad times” are seldom (who doesn’t use a Bandaid or Tylenol when it hurts?).
Dividend yield and Dividend increase
Having so much liquidity obviously leads to one of the favorite actions from a dividend investor’s perspective; dividend increase! In fact, over the past 10 years, JNJ has been increasing its dividend by 14% per year. At this rate, it is hard to find a better investment ;-).
Since the stock is currently paying a 3.55% dividend yield, you are doing much better than inflation which is around 1 to 1.5%.
Another reason why I like JNJ is that the company is well diversified. First, it sells hundreds of products, well known brands and most of their products are used by most people.
Second, 50% of its revenue comes from outside the USA. This means that we don’t have to wait for the US consumer to start spending more in order to earn revenues. According to my opinion, JNJ offer a great buying opportunity in terms of dividend yield, potential dividend increase and also in terms of future capital gains.
I just can’t wait to have my funds deposited in my brokerage account so I can start investing! Reporting my holdings on a monthly basis will be quite an adventure!
What about you? Any interest in JNJ?Google+