Can Johnson & Johnson Cure What Ails Your Portfolio?
Johnson & Johnson (JNJ) is well known around the dividend growth investing community with over 50 consecutive years of dividend increases. Chances are there's Johnson & Johnson products in your medicine cabinet right now and if you've ever had to take prescription medicine or had a medical procedure you've most likely used its products even if you didn't know it. Johnson & Johnson is a diversified giant in the health care industry. Johnson & Johnson closed trading on Friday, July 11th at $105.10 giving a current yield of 2.66%.
Discounted Earnings:
Analysts followed by Yahoo! Finance expect Johnson & Johnson to grow earnings 6.96% per year over the next 5 years and I've assumed they can grow at 5.22% (75% of 6.96%) for the next three years and at 4.00% in perpetuity. Running these numbers through a discounted earnings analysis with a 9% discount rate and summing over 30 years yields a fair value price of $111.61. This means the shares are trading at a 5.8% discount to the discounted earnings analysis.
Click here to read the rest of the analysis on Seeking Alpha.
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Discounted Earnings:
Analysts followed by Yahoo! Finance expect Johnson & Johnson to grow earnings 6.96% per year over the next 5 years and I've assumed they can grow at 5.22% (75% of 6.96%) for the next three years and at 4.00% in perpetuity. Running these numbers through a discounted earnings analysis with a 9% discount rate and summing over 30 years yields a fair value price of $111.61. This means the shares are trading at a 5.8% discount to the discounted earnings analysis.
Click here to read the rest of the analysis on Seeking Alpha.
If you'd like to receive posts via email you can do so here or on the Subscribe page at the top of this blog. As an email subscriber you'll be the first to know about ideas that are running around in my head for the blog. Also make sure to follow me on Twitter @ JC_PIP to get real time updates of purchases and what I'm reading.
To check out previous stock analysis reports check out the Stock Analysis page.
PIP,
ReplyDeleteNice analysis of JNJ. I have not initiated a position yet, even though it's a must own dividend growth stock. I thought about starting a drip too, but haven't pulled the trigger yet. I think investors in this market are really paying up for high quality and that is why the stock trades at the premium it does.
-RBD
RBD,
DeleteI also think that they're paying up for quality and I did so when I added some about a month ago. Not the worst place to invest capital because you know JNJ will continue to grow but it's just not at an ideal value.
Thanks for stopping by!
Nice write up PIP. I have been a shareholder since 2008, and while its stock hasn't run as much as some of our other investments......JNJ is a slow and steady type of dividend growth company. In 10 years i'll blink and the payout will have more than doubled.
ReplyDelete-Bryan
Bryan,
DeleteI'm really kicking myself for not adding some a few years ago when it was in the $60's. I was just starting out with investing and was focused too much on the short term value of wanting a little cheaper price than focusing on the long-term. Oh well, lesson learned and I won't make that mistake again.
Thanks for stopping by!
Hey PIP,
ReplyDeleteGreat article! I just started with my dividend portfolio, so obviously JNJ is one that I have been eyeing for a while. I came from swing trading, so it's always nice (and less stressful) to view companies from a long term perspective. 30 years is a long ways away, but it'll feel like its right around the corner if you're counting all the cash you make from dividends along the way :)
Thanks, Sam