Dividends4Life: JNJ vs. JNJ

Dividend Growth Stocks News


Posted by D4L | Tuesday, February 12, 2008 | , , | 6 comments »

In yesterday's Stock Analysis on JNJ, I stated that for some time now, I have been looking for an entry point to purchase JNJ. The overall rating of two Stars has not changed since my first review on 11-21-2007. However, many of the metrics I look at have changed and here's a break-down the differences between now and then:

11-21-2007: $67.75
02-11-2008: $62.03 (Good!)

11-21-2007: 19
02-11-2008: 17.3 (Good!)

11-21-2007: 2.48%
02-11-2008: 2.64% (Good!)

Avg. P/E Price:
11-21-2007: Unfavorable
02-11-2008: Favaorable (Good!)

Years to MMA:
11-21-2007: 14
02-11-2008: 11 (still one more than I prefer as a maximum, by 1 year)

11-21-2007: $471
02-11-2008: $2,517 (More than 5 times the November 21st amount)

Since new dividend data was available, I used my model D4L-PreScreen.xls to update some of the above analysis. I input the following data:

Symbol: JNJ
Year: 2007
Current Yield: 2.64%
Calc. Div. Growth: 11.0%
MMA Yield: 4.86%
Max Div. Growth: 20.0%
Override Div. Gro: 0.0%

2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
1.62 1.46 1.28 1.10 0.93 0.80 0.70 0.62 0.55 0.49 0.43

The calculated NPV MMA Diff only changed slightly. I determined that it would take a dividend growth rate of 11.7% to get the Years to MMA down to 10 (the maximum I like to see). Since I use a conservative method of estimating the dividend growth rate, a 11.7% is not unrealistic given the 11-year average is 14.0%. Using the Override Div. Gro. field I entered 14.0% to see what that did to the NPV MMA Diff - it increased to $8,132. I entered 5,000 in cell C25 then pressed the button in D12 to backsolved for the growth rate needed to give me a NPV MMA Diff of $5,000. It was 12.6% which is not unreasonable.

My conclusion: Buy. Like General Electric Company (GE), JNJ is one of those boring predictable companies that finds its way into most every dividend investor's portfolio. JNJ is a well-managed, well-run company and has been that way for decades. I like owning companies like JNJ and GE because it offsets some of my more riskier investments, but I will not buy in at just any price. I purchased a small block of JNJ and will continue to watch it for opportunities to add to my position.

Full Disclosure: At the time of this writing, I proudly own shares of JNJ.

Tomorrow: What did I sell to buy JNJ and why?

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  1. Noel Larson // February 12, 2008 at 6:47 PM

    I love JNJ due to it being fairly resession proof. Seems like a good potential investment, wish it was a smidge cheaper :)

  2. MG (moneygardener) // February 12, 2008 at 6:49 PM

    JNJ and GE are both 'Forever' stocks in my opinion. It is hard to find fault with either one right now. Their dividend and earnings growth histories are stellar.

  3. Anonymous // February 12, 2008 at 11:03 PM

    RacerX: I am excited to finally get into JNJ and it looks like it may be headed cheaper. That's ok because I am still buying.

    MG: I agree they both phenomenal stocks. Unfortunately, they are not always priced to buy. They are now so I am going keep nibbling at them.

    Best Wishes,

  4. Anonymous // February 21, 2008 at 6:58 AM

    I've just completed my analysis of JNJ and I also rate it a buy for it's earnings stability and relatively recession resistant products. However, I'm predicting only modest share price appreciation and have calculated the fair value to be around $67. So not much upside but lots of stability. I have my full analysis posted now.

    Disclaimer: I have a position in JNJ with no intention of selling.

  5. Dividend Tree // February 21, 2008 at 10:54 AM

    MG/D4L: I agree GE/JNJ are good equity to hold on. I believe JNJ is going down marginally with stock market. Happy nibbling. About GE, I think it is not yet priced right, and waiting for right opportunity. Considering GE's ROE and div yield, I believe it is slightly overpriced. Qualitatively, good stock to park your money (instead of CDs/Savings account). I own JNJ.

  6. Anonymous // February 21, 2008 at 9:00 PM

    American Dividend Investor: I saw your analysis and thought it looked great. How did you calculate the $67, a DCF?

    Passive Income: I would not be disappointed if JNJ and GE wend down more - that just raises the yield!

    Best Wishes,

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