Stock Analysis - Johnson and Johnson (NYSE:JNJ)
31 May 2007For my first stock analysis, I have chosen the S&P 500 Aristocrat known as Johnson and Johnson (NYSE:JNJ).
Company Profile:
From Yahoo Finance:
Johnson & Johnson engages in the manufacture and sale of various products in the health care field worldwide.
The company profile is much longer than that. For the full text, please visit Yahoo Finance. Needless to say, J&J offers well known consumer products (BAND-AID, TYLENOL), pharmaceuticals and medical devices and diagnostics.
J&J is a large cap stock with a market capitalization of $183B.
Company Fundamentals
Some of the fundamentals that I like to look at are: Return on Equity (ROE), Book Value Growth Rate, Earnings Growth Rate and Sales Growth Rate.
As far as Return on Equity goes, this company is absolutely incredible! They have consistently - for the entire decade - had returns over 25%! The 10 year average sits at 26.98% and the 5 year average at 28.48%. This shows that J&J has excellent management running this company.
Book value growth rate seems to have been fairly steady for most of the 10 year period with a hiccup in 2002. However, the growth rate did drop off last year to 6.74%. From their track record, I would classify this as another hiccup like 2002. You can see that J&J returned to its normal growth right after 2002.
Earnings per share growth rate has also been rather steady around the mid-teens. And it also shows a significant drop off last year to a low of 6.03%.
And of course, a similar trend is displayed in the sales growth rate. Although the sales growth rate has not been as consistent as the other growth rates. It has been much more sporadic over the last 10 years.
Dividend Fundamentals
Current dividend yield is 2.63%. This is a better yield than both the S&P 500 Index and the Dow Jones 30 Index.
Looking at the dividend growth rate, we see incredible consistency over the decade. Steady dividend growth of around 14% all the way through. Even in the hiccup year of 2002! You can see that this company is definitely committed to dividend growth no matter what. And that is exactly what we are looking for. A company with a culture of increasing dividends in all kinds of market cycles.
And of course, it takes cold, hard cash to pay out those dividends. The cash flow growth rate looks fairly consistent and bounces between 7% to 18% over the decade.
Historical Dividend Yields
Having a look at the historical dividend yields available over the last decade, I see an average high dividend yield of 1.91%. However, the last four years have produced high dividend yields higher than that average. So I am going to assume that I could attain a high dividend yield of 2.50%. Well, looking at today’s yield of 2.63%, it would seem that this stock is selling at a discount.
Calculating the sticker price with a high dividend yield of 2.50% would give us a price of $66.40. At today’s price of $63.05, that would be a discount of 5.05%.
Here are my calculations.
Conclusion
I can definitely see why JNJ would be considered an S&P 500 Dividend Aristocrat. It has solid company fundamentals (although I am a bit concerned about last year’s results); it has maintained its dividend growth throughout different market cycles; and it is currently paying a dividend yield well above its historical average high yield!
From this analysis, JNJ would have to be considered a buy at today’s prices.
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on June 3rd, 2007 at 3:26 pm
[…] presents Stock Analysis - Johnson and Johnson (NYSE:JNJ) posted at Dividends […]
on October 2nd, 2007 at 6:00 am
[…] cash being reinvested (a key in any research intensive industry like health-care). I will defer to dividend matters for more on J n’ J (please note that his analysis was done on May 31 so please adjust your […]