Linked here is a PDF copy of my detailed analysis of Johnson & Johnson (JNJ). Below are some highlights from the above linked analysis:
Company Description: Johnson & Johnson engages in the manufacture and sale of various products in the health care field worldwide.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. JNJ is trading at a discount to 1.) and 2.) of the four valuations listed above. If I exclude the high and low valuation, and average the remaining two valuations, JNJ is trading at a 3.6% discount. JNJ gets a Star for being fair valued.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. JNJ only earned one Star in this section for 3.) above – it has grown dividends for 10+ years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. I was somewhat shocked that JNJ did not earn any Stars in this section. The data is telling me that I would have to own JNJ for 14 years before it would pay what I am currently earning in a MMA, and after 20 years net present value of what I earned in excess of the MMA would only be $471 per $1,000 invested. A lot can happen in 20 year.
Other: JNJ is a well run company that has a long track record of raising dividends. It is a member of S&P Dividend Aristocrats and The Broad Dividend Achievers.
Conclusion: JNJ earned one Star in the Fair Value section, one Star in the Dividend Analytical Data section and no Stars in the Dividend Income vs. MMA section for a total of Two Stars, which rates it as 2-Star Weak. For some time now, I have been looking for an entry point to purchase JNJ. Based on this analysis, I will continue to wait.
Disclaimer: As always this is only my opinion and you should not rely on it. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I do not own shares of JNJ.
What are your thoughts on JNJ?
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