JNJ Stock Evaluation


Welcome to the first of my new posts on "Foundation" stocks.  In this section we'll look at some companies that have very few, if any, red flags with regards to stock price and dividend cuts.  These companies will be safe and steady and ones that we should feel safe buying at pretty much any price point.  Of course, no stock is ever safe from risk entirely, but by looking at various stats and performance we hope to minimize the risk we are taking.  I am invested in all of these companies and will continue to buy more to develop a solid foundation in my portfolio that will keep paying me dividends for years to come.  Let's go over the criteria I will use for determining a safety threshold.

Market Cap: Greater than 2 Billion (we don't want to invest in any smaller companies as they tend to be less stable)

Price/Earnings Ratio: Under 20 (just a check to make sure the price isn't out of control compared to the earnings - most consistent payers will be around or under this number)

EPS Current: 3+ (solid positive earnings today)

EPS (5 year projection): 3+ (solid positive earnings expected going forward)

History: 20+ years of increasing dividends at least once per year (we want companies that have shown the ability to keep payments increasing through recessions)

Dividend Increases: 1,3,5 year increases all over 5% (we want our dividend growing at a sufficient rate to outpace inflation)

Payout Ratio: Under 70% for the last 5 years (provides a safety net to afford payments in low earning years and allows for room to increase dividends going forward)


And with that, we can get started with our first company...




Description From Google Finance:

Johnson & Johnson is a holding company. The Company is engaged in the research and development, manufacture and sale of a range of products in the health care field. The Company has more than 265 operating companies conducting business around the world. The Company’s primary focus is products related to human health and well-being. The Company is organized into three business segments: Consumer, Pharmaceutical and Medical Devices. The Company's subsidiaries operate 134 manufacturing facilities occupying approximately 21.5 million square feet of floor space. The Company’s research facilities are located in the United States, Belgium, Brazil, Canada, China, France, Germany, India, Israel, Japan, the Netherlands, Singapore, Switzerland and the United Kingdom.

Description In Non-Business Jargon:

Johnson & Johnson is all over the place within the medical field.  They do a lot of research and development, but also own a slew of consumer product brands such as: Johnson’s baby products, Band-aid, Neutrogena, Aveeno, Listerine, Tylenol, and Nicorette.

Basic Statistics




P/E Under 20: Check. Shows that the price range is reasonable for the amount of earnings they post.  When we see anything over this, it's usually a less stable growth-based buy instead of a proven stalwart.

EPS Current + Projected both over 3: Check. Earnings are high now and expected to stay around the same threshold in the future.  It's notable that the projection is about the same, which means we probably shouldn't expect an awful lot of business growth in the next 5 years.  That's okay as long as they keep paying our increasing dividend and continue to make the same amount per share (which is more than sufficient for us)

PEGY: I didn't set a criteria here because its hard to compare companies that aren't in the same industry, and therefore hard to generalize it to all stocks.  The PEGY ratio shows that we are paying $2.65 for every $1 earned in the future.  This is fairly high because people recognize what a safe stock this is.  Half a century of increasing dividend payouts with a low payout ratio, high earnings and nice price growth.  We pay a little bit of a premium here for jumping in without as much risk as people before us, but I'm okay with that.

Dividend Information


HISTORY52 YEARSPAYOUT RATIO (prev 4 years)65%, 62%, 54%, 48%


History: Check. 52 years of increasing dividend payments. Half a century, enough said.

Dividend Yield: Check. Over our 2.5% threshold.  2.92% is about an average size payment.  The value is how long they've been paying/increasing it, so we know to expect the payments to continue.

Dividend Increases: Not the biggest increases but you can see the remarkable consistency once again in these numbers.  And they are more than enough to outpace inflation going forward.

Payout Ratio: Check. Under our 70% threshold going back to 2011.  This will vary by industry a bit, but we can assume we have plenty of a safety margin for payments in rough economy years as well as room for them to increase the payments in general.  No red flags shown.

$1000 Invested in January 2011


Obviously, this section doesn't do us any good if we DIDN'T invest $1000 in January 2011, but I figured it would give you an idea of how the stock has paid off in the recent future.  Don't read too much into this, as it serves as mostly motivation to begin investing as soon as possible and let time in the market work in your favor.

Present Value (as of 12/23/2015) = $1,993 with dividend reinvestment for an average return of 14.91% per year.

Optimal Price Range


It's hard to set an optimal price range for JNJ.  What we've seen in its statistics and history is that it seems to always be a good time to buy JNJ.  Consistency is the name of the game here.  The dividend is as safe as they come, 52 years straight and still going strong.  The payout ratio has been steadily under the level that would cause concern (80+% would probably set off a red flag) so we can expect them to keep paying it and have room to increase it each year.  

In addition to all these solid, safe aspects, I expect the medical field to be a bit safer in the future due to a large population of the country getting older.  Obviously no way to get that into a statistic, but something that seems logical to me.

JNJ will continue to be one of my favorite "safe" stocks and one of my largest holdings going forward.  It might not be as exciting as other things you might buy, but it should pay off largely in the long run while giving you a steady source of income through its dividend payouts.

I'll be posting these evaluations on several other companies in the next few weeks to round out what I call my "foundation" stock choices...

Please follow and like the blog:
Follow by Email

Leave a Reply

Be the First to Comment!

Notify of