New Buy: Johnson & Johnson (JNJ)

One of my favorite Buffet quotes is the following:

“Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

With the market wild gyrations continuing, I spotted some quality merchandise with a marked down price. Since this company is pretty much all you want in a dividend growth stock, I decided to pull the trigger.

On April 16 I bought 8 (additional) shares of Johnson & Johnson (JNJ) for a total of $1,017.

In this post I will cover some key features of this company, why I liked the stock enough to add it to my portfolio and what this purchase means for my forward dividend income.

Johnson & Johnson, together with its subsidiaries, researches and develops, manufactures, and sells various products in the health care field worldwide.

Its Consumer segment offers baby care products under the JOHNSON’S brand; oral care products under the LISTERINE brand; beauty products under the AVEENO, CLEAN & CLEAR, DABAO, JOHNSON’S Adult, LE PETITE MARSEILLAIS, NEUTROGENA, RoC, and OGX brands; over-the-counter medicines, including acetaminophen products under the TYLENOL brand; cold, flu, and allergy products under the SUDAFED brand; allergy products under the BENADRYL and ZYRTEC brands; ibuprofen products under the MOTRIN IB brand; and acid reflux products under the PEPCID brand. This segment also provides women’s health products, such as sanitary pads under the STAYFREE and CAREFREE brands, and tampons under the o.b. brand; wound care products comprising adhesive bandages under the BAND-AID brand and first aid products under the NEOSPORIN brand.

The company’s Pharmaceutical segment offers various products in the areas of immunology, infectious diseases and vaccines, neuroscience, oncology, cardiovascular and metabolic, and pulmonary hypertension diseases. Its Medical Devices segment provides orthopedic products; general surgery, biosurgical, endomechanical, and energy products; electrophysiology products to treat cardiovascular disease; sterilization and disinfection products to reduce surgical infection; diabetes care products that include blood glucose monitoring; and vision care products, such as disposable contact lenses and ophthalmic products related to cataract and laser refractive surgery.

The company markets its products to general public, retail outlets and distributors, wholesalers, hospitals, and health care professionals for prescription use, as well as for use in the professional fields by physicians, nurses, hospitals, eye care professionals, and clinics.

Johnson & Johnson was founded in 1885 and is based in New Brunswick, New Jersey.

JNJ’s current dividend yield is 2.57% – below the average 3.5% yield I strive for in building my portfolio.

However, the company is featured on David Fish’s list of Dividends Champions, Contenders and Challengers - with an incredible 55  year streak of growing dividend pay-outs.

JNJ’s 5 year dividend growth is 6.61% - with last year’s dividend growth coming in at 5%, leveling off a bit.

The Trailing Dividend Payout Ratio is 54%, leaving room for future dividend growth.

JNJ’s Earnings per Share (EPS) over the last five years shows an -34.37%  decrease. The forward EPS Long Term Growth (3-5 Yrs) looks better with a projection of +7.66% growth.

EVA Dimensions (an equity research firm) states in their April 18 report that JNJ’s Performance Risk Valuation (PRVit) is at the 68th percentile of all firms in its industry, which leads to a recommendation to Overweight.

It adds that JNJ is more attractively priced in relation to its true value than than well over half of the stocks in its industry.

Ford Equity Research recommends a ‘Hold‘ with a 52-week price range of $121.37 - $148.14.

Jefferson Research concludes that JNJ is showing strong Earnings Quality, Cash Flow Quality and Balance Sheet Quality, but Valuation suggests a higher amount of price risk, and Operating Efficiency is weak. When combined, JNJ deserves a HOLD rating.

Given JNJ’s annual dividend of $3.36 per share, this latest increased my forward annual dividend income by $26.88.