Today we will have a look on another Dividend Aristocrat (this one with more than 50 consecutive years) – Johnson & Johnson (JNJ).

Company is a world well-known brand in health care products (but not only professional ones) and I am sure that almost every reader of this post has tried products of JNJ. Company presents three operational segments – Consumer, Pharmaceutical and Medical Devices. Split of sales is presented below:

Sales JNJ

(source: 5-year Financial Review, JNJ website)

As we can see sales in every segment is stable or growing. Trends which are favorable for company are: increasing population, enrichment of society, growing quality of life. In my opinion these trends are long term and I see no risk that they will change.


As it comes to financials (estimates):

Market cap ~ $281B

Net cash ~$17B (net cash!)

Payout ratio ~55%

ROE ~20%

Beta = 1.02

Estimated growth rate (g) = 0.45 * 20% = 9%

+ dividend yield 3%

Estimated valuation ratios:

P/E = 16.4 (guidance EPS reported $6.20), valuation is neutral for me.


Johnson & Johnson is one of The Dividend Aristocrats with almost all-time high share price (currently $101.68). Nevertheless dividend yield is around 3% so it is hard to say that company is overvalued from dividend perspective. Historically the company was paying around 2% and in last years (2009, 2012) there were moments when yield hiked to around 4% (more). During sell-off in August share price dropped to around $82 (for a very short time) which was 3.6% dividend yield. In my opinion company can pay higher dividend (due to strong net cash position). Alternatively company can buy back shares and it seems there are such plans – Board of Directors approval of the repurchase of up to $10 billion of the company’s common stock.


Drawdown risk:


Drawdown analysis shows that in the worst times share price did not fall by more than 40%. Currently it is around all time high – for me it is not a good time for buying.


Potential negative factors:

  • Further appreciation of USD (lower profits from foreign operations after currency translation), in 2015 only due to strong USD sales is lower by about $5.0B
  • Strong competition in Pharma segment (it is risk in every business activity…)
  • Normal risk associated with consumer products – example here


Summing up, another high quality company with a diversified business, strong balance sheet and acceptable dividend. If only something bad happens on the market and share price falls (which means that dividend yield will grow to about 3.5%) I think I will buy some shares.


Disclaimer JNJ no position