Friday, May 31, 2013

Analysis of Johnson & Johnson

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. This dividend aristocrat has paid uninterrupted dividends on its common stock since 1944 and increased payments to common shareholders every for 50 consecutive years. There are only fifteen companies in the US which have managed to raise distributions for more than half a century each.

The company’s last dividend increase was in when the Board of Directors approved a 7% increase to 61 cents/share. Johnson & Johnson's major competitors include Pfizer (PFE), Bristol Myers Squibb (BMY) and Novartis (NVS).

Over the past decade this dividend growth stock has delivered an annualized total return of 6% to its shareholders.


The company has managed to deliver a 5.40% annual increase in EPS since 2003. Analysts expect Johnson & Johnson to earn $5.41 per share in 2013 and $5.78 per share in 2013. In comparison Johnson & Johnson earned $3.86 /share in 2012. The amount was lower due to one-time accounting charges against net income.

The company’s return on equity has declined from 30% to 18% over the past decade. 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 has increased by 11.70% per year over the past decade, which is higher than to the growth in EPS.

A 12% growth in distributions translates into the dividend payment doubling every six years. 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.

The dividend payout ratio has increased from 38% in 2003 to 62% in 2012. This was caused by one-time charges against net income. The payout ratio based on forward EPS is standing at 45%. 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 14.60 times forward 2013 earnings, has a sustainable dividend payout and yields 3.10%. I recently added to my position in Johnson & Johnson.

Full Disclosure: Long JNJ

Relevant Articles:

The Dividend Kings List Keeps Expanding
25 Companies raising distribution in 2012’s busiest week for dividend increases
Seven companies expected to grow dividends in 2013
Johnson & Johnson is undervalued –Here’s why

This article was written by Dividend Growth Investor. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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