Johnson & Johnson – JNJ Stock Dividend Analysis 2019
With the recent opioid lawsuit ruling, Johnson & Johnson recently became a contender on my stock screener watch list. Today we’ll go over the analysis and whether or not JNJ looks like a lucrative buy at the moment and complete a JNJ Stock Dividend Analysis.
JNJ in a Nutshell
Johnson and Johnson is a monstrous company. Not only has it been in existence for many years with many product lines, but it has coveted Dividend King status, which means it has been paying steadily increasing dividend payments for 50+ years.
Below are some more high-level details on the stock.
| Employees (1) | 130,000 |
| Revenues (2) | $81.53B |
| In Business Since (3) | 1886 |
| Dividend Payment History (4) | 57 Years |
| Moody’s Debt Rating (5) | Aaa |
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The Case for JNJ
JNJ is a household name. If you ask anyone around the world, the chance that they utilize a Johnson & Johnson product on a daily basis is very high.
Some of the most popular JNJ products are:
- Listerine
- Rembrandt toothpaste
- Band-Aids
- Clean & Clear
- Benadryl
- Neutrogena
- Tylenol
See a full listing of JNJ products: https://en.wikipedia.org/wiki/Category:Johnson_%26_Johnson_brands
In addition to these well-known name brand products, JNJ also has a large exposure to the world of surgical equipment and pharmaceuticals.
Throughout the world, JNJ is a respected name, has a higher debt rating than the United States government, and creates solid cash flow year-over-year.
However, with this success, it has become a target for lawsuits on various fronts.
The Current Crisis for JNJ: Opioid Lawsuits
Over the course of its history, but primarily in the past 10-15 years or so, the company has come under pressure from lawsuits claiming that the company has been pushing dangerous, addictive opioid drugs in the market.
While JNJ was just ordered to pay $527mm (which was a positive in the sight of the markets, as this could have been as high as $17B), it is still yet to be determined what these lawsuits will end up costing the company.
Various authors have written excellent analyses of these lawsuits and continue to do so, so we will not cover all the details here. Be sure to check out this piece by SeekingAlpha author Out of Ignorance.
While some authors recommend a hold or delay status because of these opioid lawsuits, I view this as being a perfect opportunity to own a stock that has previously traded at too high of levels to make it an attractive investment opportunity.
Forward Dividend Income: JNJ Stock Dividend Analysis
While JNJ is beginning to show a more favorable entry point on the MBR dividend watchlist, that does not mean it is an automatic buy. We must still take the JNJ Stock Dividend through the analysis process.
The first step is to calculate the Forward Dividend Income. Here are the numbers assuming a $3,000 entry point:
| Forward Dividend Calculator | |
| Investment Amount | $3,000.00 |
| Stock Ticker | JNJ |
| Share Price | $130.11 |
| Dividend | $0.95 |
| Dividend Frequency | 4 |
| Annual Dividend Payout | $3.80 |
| Shares Purchased | 23.1 |
| Payout/Yr. | $87.62 |
| Payout/Qtr. | $21.90 |
| Yield | 2.92% |
| Share Accumulation | 0.67 |
Source: MoneyByRamey.com Dividend Calculator
JNJ Forward Dividend Income Analysis
While the yield and share accumulation are not yet at levels where I typically invest at, as I am after 3%+ yield and high levels of share accumulation, the chance to own a Dividend King at near a 3% dividend yield point, is truly intriguing.
Therefore, I am comfortable with these numbers and will look to take this into the QuickView phase.
The QuickView
In the QuickView process, the goal is to look at six questions and answer them in a matter of 10-15 minutes. The goal here is not an in-depth analysis of the figures, but rather an indicator of whether or not we want to move this stock into our next phase of the investment process.
Here are the questions to answer
#1 – Is a moat present?
Yes. Johnson and Johnson has been in operation for over 130 years. During that time period, the company has done a fantastic job of building good brand equity by creating products that the world loves.
A quick look on its balance sheet shows that the company has $49B worth of intangible assets, most of which are patents it has acquired on existing products. This type of dominance across various product groups has helped it to become a powerhouse and a Dividend King.
#2 – Is the CFFO positive?
Yes. This is where JNJ really makes its mark. It continues to generate solid Cash Flow From Operations year-over-year. In looking at the last 5 years of cash flow data, the company has generated anywhere from $18.47B – $22.2B in cash flow from operations.
This type of performance is exactly what we need to see as Dividend Investors. This shows us that the JNJ Dividend is well protected through the company’s massive cash generation power.
#3 – Did CFFO cover dividend payments?
Yes. As discussed above, the JNJ dividend is well protected by cash flows from operations. Over the past 5 years, the dividend was covered by cash flow at a little over 2x.
#4 – Was working capital positive the past three years?
Yes. The company has had a positive working capital, which is important for me to see as a dividend investor. I will still consider investing in companies with negative working capital, however, the fact that WC is positive helps me know that the dividend is better protected.
#5 – Is the company in a growing industry?
Yes. The company’s revenues have been growing for the past 4 years straight. There was a slight drop in revenues from ’14 to ’15, which will be something to look at in more detail in the Deep Dive Process.
#6 – Is the debt/equity at, close to, or under 1x?
Yes. Debt/Equity is currently very manageable. With total debt at $93B and equity at $60B, the debt/equity comes in at under 2x, which is great for a value investor such as myself.
Since JNJ hits on all points in the QuickView, we’ll take it onto the next step: The Spread.
The Spread: JNJ Stock Dividend Analysis
In the Spread, we get a better look at the company’s numbers by entering the data into the MoneyByRamey.com spreadsheet. Here are the numbers.
High-level Summary
| 6/30/2019 | 6 mos. |
| High Level #s | |
| P/E Ratio | 15.41 |
| MC | $343,381,889,870 |
| Equity | 60,785,000,000 |
| P/B | 5.65 |
| Liabilities | 94,332,000,000 |
| Debt/Equity | 1.55 |
| Debt/BV | (4.25) |
| Working Capital | 10,446,000,000 |
| Working Capital Ratio | 1.33 |
High-level Takeaways
- Current PE Ratio is favorable for JNJ. The stock has become more appealing with the opioid lawsuit issues.
- Price/Book is a bit higher at 5.65x. In its most basic terms, this means a premium is being paid when compared with the overall equity of the company.
Income Statement
| Income Statement | |
| Sales | 40,583,000,000 |
| COGS | 13,555,000,000 |
| Gross Profit | 27,028,000,000 |
| Interest Expense | 185,000,000 |
| Net Income | 9,356,000,000 |
| Depreciation & Amortization | 3,466,000,000 |
| Taxes | 2,107,000,000 |
| EBITDA | 15,114,000,000 |
| Profit Margin | 23.05% |
| EBITDA/Int Exp | 81.70 |
| NI/Int Exp | 50.57 |
Income Statement Takeaways
- Profits easily cover interest expense. As a debt-averse investor, I love to see this!
- Solid revenues and profitability.
Balance Sheet
| Balance Sheet | |
| Current Assets | 41,799,000,000 |
| Cash, A/R | 14,376,000,000 |
| PPE | 17,248,000,000 |
| Total Assets | 155,117,000,000 |
| Current Liabilities | 31,353,000,000 |
| Long-term Liabilities | 62,979,000,000 |
| Total Liabilities | 94,332,000,000 |
| Equity | 60,785,000,000 |
| Intangible Assets | 82,993,000,000 |
| Book Value | (22,208,000,000) |
| Working Capital | 10,446,000,000 |
| Working Capital ratio | 1.33 |
| Debt/Equity ratio | 1.55 |
| Debt/BV | (4.25) |
Balance Sheet Takeaways:
- Debt/Equity in line with what I normally like to see in investments.
- A large level of intangible assets is causing the company to have a negative book value. A large portion of these intangible assets are made up of patents, which I would argue are very valuable to the company. The negative book value is somewhat misleading.
Cash Flows
| Cash Flow Statement | |
| CFFO | 9,491,000,000 |
| CFFI | (3,205,000,000) |
| CFFF | (10,050,000,000) |
| Change in Cash | (3,764,000,000) |
| Divs | 4,198,000,000 |
| CFFO/Divs | 2.26 |
Cash Flow Takeaways
- The company is a cash cow. It maintains solid cash flows generated from operations.
- Cash flow from financing (CFFF) is the largest negative, which is mostly a combination of dividends paid and share buybacks. Both of these are net positives to me as an investor, and since JNJ has the cash flow to complete these initiatives, I am not worried.
The Spread Analysis
Overall JNJ is a rock-solid stock from a numbers perspective. The stock has become favorable due to the opioid issues, which is great for me as a value investor.
So long as the lawsuits do not have any material impact on JNJ from a long-term perspective, I am quite fine holding this stock for the long-term.
To Buy or Not to Buy?
I initiated a purchase of $3,000 worth of JNJ stock. I was able to accumulate 23 shares at $130.38, which added $87.40 to my forward dividend income.
The goal with JNJ is to add more to the position for a $5,000 total position. I will be watching closely to see if an average down in the coming months is possible.
The MoneyByRamey.com portfolio now yields $5,385.01 in dividend income annually, and it continues to grow as I add more awesome companies through purchases, DRIP, and dividend increases.
Thank you for reading! I appreciate your patronage – if you could do me a favor and comment below to let me know what you think and share this article on social media, I would really appreciate it!
Want to learn more behind the strategy? Check out The Dividend Investing Strategy!
References
(1) https://www.jnj.com/about-jnj
(2) https://www.marketwatch.com/investing/stock/JNJ/financials
(3) https://en.wikipedia.org/wiki/Johnson_%26_Johnson
(4) https://seekingalpha.com/symbol/JNJ/dividends/scorecard
(5) https://www.moodys.com/research/Moodys-affirms-JJ-at-Aaa-revises-outlook-to-negative–PR_408335
Disclosure: I am/we are long $JNJ
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