Summary
- JNJ currently sports a dividend with a yield of approximately 3%.
- This may be reason enough for some income investors to own the stock right now.
- Opportunity for dividend growth investors with a long-term outlook.
History:
Johnson & Johnson is engaged in the research and development, manufacture and sale of a broad range of products in the health care field. Johnson & Johnson is a holding company, which has more than 265 operating companies conducting business in virtually all countries of the world. The Company’s primary focus is products related to human health and well-being. Johnson & Johnson was incorporated in the State of New Jersey in 1887.
The Company’s structure is based on the principle of decentralized management. The Executive Committee of Johnson & Johnson is the principal management group responsible for the strategic operations and allocation of the resources of the Company. This Committee oversees and coordinates the activities of the Consumer, Pharmaceutical and Medical Devices (previously referred to as Medical Devices and Diagnostics) business segments. Within the strategic parameters provided by the Committee, senior management groups at U.S. and international operating companies are each responsible for their own strategic plans, as well as the day-to-day operations of those companies, and each subsidiary within the business segments is, with some exceptions, managed by citizens of the country where it is located.
Segments of Business
The Company is organized into three business segments:
- Consumer
- Pharmaceutical
- Medical Devices
Consumer:
The Consumer segment includes a broad range of products used in the baby care, oral care, skin care, over-the-counter pharmaceutical, women’s health and wound care markets.
Pharmaceutical:
The Pharmaceutical segment is focused on five therapeutic areas, which includes:
- Immunology: Rheumatoid arthritis, inflammatory bowel disease, psoriasis and pulmonary diseases.
- Infectious diseases: HIV, hepatitis, respiratory infections, tuberculosis and vaccines
- Neuroscience: Alzheimer's disease, mood disorders, schizophrenia and pain
- Oncology: Prostate cancer, multiple myeloma, hematologic malignancies and lung cancer), and cardiovascular
- Metabolic diseases: Thrombosis and diabetes
Medical Devices:
The Medical Devices segment includes a broad range of products used in the orthopaedic, surgical care, specialty surgery, cardiovascular care, diagnostics, diabetes care, and vision care markets.
Inside Ownership:
List of former Directors in Management:
Description:
The company has increased its dividend for 52 consecutive years, with cash dividend paid were $2.76 for 2014 which yield approximately 3% which is a quite satisfactory result for some investors who want to invest in the stock and a good time to invest for them.
As the company has stated that they have increased its dividend for 52 consecutive years this spots good news for those investors who has already invested in the stock.
Outlook:
JNJ delivered the better financials for the year 2014 with an annual sale of $74.3 billion, an increase of 4.2% as compared to the same period a year ago. Looking at the current state of the market, geopolitical and macro-economic risks are on the rise. It does not seem that the bad news shrug from the market soon and the investors who are more concerned about their capital preservation than appreciation found this stock worthwhile to invest in since the business is involved in several steadily-growing highly diversified businesses.
Opportunity growth in dividend:
The health care sector is yielding an average 2.19% dividend, while JNJ delivered the dividend of 2.80%. Investors who are looking at long term growth opportunity may find JNJ to be a very lucrative option.
Considering the below chart of JNJ dividend declaration, there is very little risk of a dividend cut, as JNJ has increased the divided every year from the last 52 years since 1963.
Even though the dividend rate has decreased somewhat in the last few years, nonetheless it still increasing by 7% each year for the last three years, and I believe it will grow easily in the future.
Currently, JNJ sustainable pay-out ratio is 46% which seems a bit low since around 60% seems good for investors who want capital appreciation. However, this seems good enough that in case if a company has to face a rough patch it can sustain itself. There is much room available for improvement in the dividend growth. The company should increase the growth rate of the dividend to over 10% on an annual basis until the pay-out ratio reaches 60%. If the company's guidance comes to fruition, these additional cash flows should be distributed to shareholders in the form of increased dividend or share buybacks. A dividend increase would be my preference. Further, the company needs more cash to spare for accretive investments when opportunity arises.
Return on Equity:
A company's return on equity is quite possibly the most important factor to consider when starting a position in a stock. Return on equity relates to the profitability of a company. Companies with high return on equity ratios have plenty of cash to pay dividends, finance growth and put some away for a rainy day. JNJ's is outstanding at 28%. Normally an ROE of 15% or higher is sufficient, but JNJ's at 28% under present market conditions is extremely good.
Positive EPS growth
The company has had 31 years adjusted earnings increases. Nonetheless, EPS growth did slip by 27% quarter over quarter recently according to Finviz.com. Even so, this is the area the company is laser focused on improving. The company's fortress balance sheet is a mitigated factor as well.
JNJ trades at a discount to the market
JNJ's forward P/E ratio of 15.9 is substantially lower than that of its peers or the industry.
As we can see, the stock is currently undervalued compared to its peers. This further solidifies the stock's safe haven status. While the markets took a significant beating on Wednesday, JNJ's stock held up quite well at basically flat for the month.
JNJ's dividend pay-out may be is reason enough alone to own the stock. This dividend yield is on par with its competitors at 2.8%, the pay-out ratio is low leaving room for growth, EPS growth has been consistent, and the company's ROE is outstanding. On top of all this, the company is highly profitable.
Dividend growth investors should definitely consider adding JNJ to their portfolios at this level. If you have a long-term time horizon this may just be the ideal time to start a position. Nonetheless, the markets are still near all-time highs as geopolitical risk seems to be popping out of the woodwork. Take your time and be patience building a full position in the stock.
Disclosure:
I don't have any investment in the aforementioned stock, nor do I get paid from the aforementioned stock company to write, and I have no plans to invest in the stock for the next 72 hours.
The above details are taken from the company filings 10K some news are considered from finviz.com graphs have been taken from dividend and dividend-news.com and valuation metrics are considered from gurufocus.com & scottrade.com
Inside ownership is taken from gurufocus.com
List of members of management is taken from company filling 10K.
