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:
Price:
11-21-2007: $67.75
02-11-2008: $62.03 (Good!)
P/E:
11-21-2007: 19
02-11-2008: 17.3 (Good!)
Yield:
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)
NPV MMA Diff:
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%
Dividends:
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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I love JNJ due to it being fairly resession proof. Seems like a good potential investment, wish it was a smidge cheaper :)
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.
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,
D4L
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.
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.
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,
D4L