Friday, February 4, 2011

Johnson & Johnson (JNJ) Dividend Stock Analysis

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The company is a dividend aristocrat which has increased distributions for 48 years in a row. One of the company’s largest investors is no other than Warren Buffett’s Berkshire Hathaway.

Over the past decade this dividend stock has delivered an annualized total return of 4.10% to its loyal shareholders.

The company has managed to deliver an average increase in EPS of 11.10% per year since 2000. Analysts expect Johnson & Johnson to earn $4.75 per share in 2010 and $4.99 per share in 2011. This would be a nice increase from the $4.40/share the company earned in 2009.
The company has a diversified product line across medical devices, consumer products and drugs, which should serve it well in the future. In addition ot that Johnson & Johnson is expanding into new long term opportunities such as vaccines business of Crucell NV. As usual growth in emerging markets and opportunities for cost restructurings should further help the company in squeezing out extra profits in the long run. Sales in drugs like Simponi, Stelara and Prezista should more than offset the generic erosion from older drugs which are losing their patent protection.


The company’s return on equity has remained above 25%, with the exception of a brief decrease in 2006 and 2007. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment in US dollars has increased by 13.40% per year since 2000. A 13% growth in distributions translates into the dividend payment doubling every five and a half. If we look at historical data, going as far back as 1972, we see that Johnson & Johnson has actually managed to double its dividend every five years on average.


Over the past decade the dividend payout ratio has increased from 37% in 2000 to 44% in 2009. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently, Johnson & Johnson is attractively valued at 12.70 times earnings, yields 3.60% and has a sustainable dividend payout. In comparison Abbott Laboratories (ABT) yields 3.90% and trades at a P/E of 15.50. I would continue monitoring Johnson & Johnson and will consider adding to a position in the stock on dips.

Full Disclosure: Long ABT and JNJ

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2 comments:

  1. Thanks for your analysis - I find these valuable, and hope you keep them up.

    One comment though: I find it surprising that you could do an analysis of JNJ without commenting on the risk and/or price discount as a result of their recall troubles in 2010.

    I'm also a bit surprised that you hadn't updated your analysis with 2010 Y/E numbers, which were out last week...

    ReplyDelete
  2. Gret site...thanks

    A suggestion.

    When showing tables comparing stocks, it would be interesting to include the last decade performance as you show in your individual analyses.

    For example, JNJ, it might up dividends regularly, but the cash in your pocket isn't so great in the last decade compared to KMP for example.

    Food for thought.

    ReplyDelete

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