Thursday, May 10

The Dividend Project - A First Look at JNJ

Well, I mentioned JNJ yesterday and today a committee in the US made a statement that sent it tumbling 2.5% so it may be a good time to be looking at this stock. Here are some numbers:

Today's Closing Price: $62.50
Dividend Yield: 2.66%
Trailing P/E: 17.81
5 Year Annual Average Dividend Growth: 15.76%

Why I am watching this stock:

  • Long, solid history of increasing dividends
  • Big company with name/brand recognition
  • Health care is not cyclical and demand will only increase as the boomers age
  • Other experts favor it (Warren Buffett owns JNJ shares)
Today's news affected a product that MSN Money tells me accounted for about 6% of their 2006 revenue so it was significant but far from their whole business. As well, the committee only said to add more warnings and conduct more safety tests so I don't think that will shut down this product, especially since it is a key product for the company and they will work hard to keep it viable.

Compared to the past 3 years, 2.66% looks like an above average dividend yield for JNJ. I read somewhere that the market average is 1.9% so it is favourable compared to this as well. The P/E ratio is not cheap but it is below the market average of 18 as well. 15 is the number that I keep seeing as a target maximum so it's about 20% higher than that.

Here is the 1 year chart (click image to enlarge):




And the 5 day chart:



I will be watching this stock to see if it is going lower or regaining some ground. The DJIA has run up so high in the last two months that today's loss of 147 points could be followed by more, and maybe JNJ would be pulled down by that as well. Certainly I would say that if it goes to $60 as it did in March it is a clear buy. Even at $62.50 I like it.

Remember that I'm not an expert and you have to do your own research and investment decisions! :)

Update: here is a blurb on JNJ - note how it offers international exposure.

Johnson & Johnson is the world's most comprehensive and broadly-based manufacturer of health care products, as well as a provider of related services, for the consumer, pharmaceutical and professional markets. Johnson & Johnson has more than 180 operating companies in 51 countries around the world, selling products in more than 175 countries.

10 comments:

moneygardener (AKA investor99) said...

JNJ is an amazing company. The breadth of the company really astounds me. There are so many good reasons to buy it and hold it.

I believe it is cheap anywhere under $64.

Disclosure - 10% of my portfolio is in JNJ.

Average Joe said...

Hi Diva,

I have not looked at this company at all. But Jim Cramer mentioned it on his show 'Mad Money' about a month ago.

He was negative on the stock. Check out the recap of that episode for his take on JNJ at http://www.madmoneyrecap.com/daily_recap_closingcomments_041207.htm.

Not that his advice is gospel or anything, but it might lead you down other avenues to explore. The more information you have to base your decision, the better.

Hope you find this useful.

Average Joe

SdR said...

I'm really enjoying your series on dividend investing as its something we're looking to get into here as well. I'm assuming you're holding these investments outside your RRSP; if so, wouldn't it be better to look at Cdn dividend-generating investments as they have the benefit of a tax credit? I know JNJ is a great company -- I've purchased some for my RRSP portfolio -- but up to this point I've only been looking at Canadian investments for non-tax sheltered dividends. Do you think the potential returns outweigh the differential tax treatment?

Keep up the great work!

the money diva said...

joe -- I took a look at Cramer and his main complaint was their pipeline of new drugs was not strong. I will keep an eye out for further information on this.

sdr -- I hold my stocks inside an incorporated company and my accountant has indicated that foreign dividends are equally favorably taxed as Canadian when held this way.

Thanks for visiting!

MD:)

Anonymous said...

If you're going to be investing in a lot of dividend paying stocks you might want to look at https://www.investments.shareowner.com they've got a great DRIP plan and allow you to hold partial shares and make regularly scheduled purchases.

FinancialJungle.com said...

Excellent choice on JNJ, Money Diva. ROIC is consistently 30%+ and low debt/equity. I've owned some shares for a while. Fundamentals improved but the price is still the same. Good bargain!

Anonymous said...

Jim Cramer might not like the company, but other investors like Warren Buffett have found it to be a good buy in the last year. See:

http://tinyurl.com/2n9zau

maxRoi said...

MD, I saw that you touched on incorporated companies as a way of getting favourable taxation on foreign dividends.

Do you think you could do a posting on setting up an incorporated company for investment purposes? Go through the requirements, pros/cons, that sort of thing.

Would it be possible if the individual had a normal day job and the sole purpose for their incorporated company was for investments?

Anonymous said...

Check out TSMC (2330.TW on the Taipei exchange, or TSM on the NYSE) as a dividend pick.

4% dividend, low P/E, low P/B for a tech firm, practically no debt, and excellent transparency and disclosure in an industry that they absolutely dominate in. And like the products sold by JNJ/PFE, the need for microchips is never going to go away.

Yes, its a tech stock, but don't let that scare you ;).

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