So with this lovely market decline we’re experiencing, I’ve been getting really antsy. I really want to buy some shares of high-quality companies on the recent dip. I somehow managed to scrounge up a bit of cash, and can now make a second purchase this month.
Today, I bought 11 shares of Johnson & Johnson (NYSE: JNJ) at $95.45 per share.
Like KMB before, JNJ doesn’t really need an introduction. Most DGIs have at least heard of this healthcare company, or actually own shares in their portfolio. In the extreme off chance you haven’t, here’s a quick company summary from Scottrade:
Johnson & Johnson is a holding company. The Company is engaged in the research and development, manufacture and sale of a broad range of products in the health care field. The business of Johnson & Johnson is conducted by more than 275 operating companies located in 60 countries, including the United States, which sell products in virtually all countries throughout the world. In March 2013, Johnson & Johnson’s Cordis Corporation announced the acquisition of Flexible Stenting Solutions, Inc. In June 2013, Johnson & Johnson announced the opening of the Johnson & Johnson Innovation center in Boston. In July 2014, Johnson & Johnson completed the divestiture of Ortho-Clinical Diagnostics business to Carlyle Group.
JNJ owns many quasi-legendary and extremely valuable brands, like Neutrogena, Bengay, Band-Aid, Neosporin, Listerine, Tylenol, and Visine. It is also a Dividend Aristocrat, with 52 years of consecutive dividend increases. More info is available on the company’s website.
Let’s run our basic screening criteria on it, with the help of David Fish’s US Dividend Champions List:
- Pays a dividend: Yes
- Has 5 years of dividend increases: Yes (52 years)
- Has not frozen dividend for over 8 quarters: Yes
- Has a Chowder number of 12 or more: No (10.2)
- Has am EPS payout ratio of less than 70%: Yes (51.76%)
- Pays a dividend monthly or quarterly: Yes (Quarterly; February, May, August, November)
Nope, JNJ fails on the Chowder rule. Can JNJ hold its own in round two scoring? Let’s look at the FAST Graphs chart:
- Has an S&P Quality Ranking of ‘A-‘ or better: Yes (AAA)
- Has generally increasing earnings over the past 10 years: Yes
- Is fairly valued/undervalued according to the Normal P/E ratio (blue line): Yes
- Is fairly valued/undervalued according to the Intrinsic P/E ratio (orange line): No
Other Bonus Ratings:
- S&P Capital IQ: 4-star buy
- Scale is 1-5, 1 being ‘strong sell’, 5 being ‘strong buy’
- Thompson Reuters StockReport: 8 (optimized score of 7)
- Scale is 1-10, 10 being best, 1 being worst
- Optimized scores weight insider trading and price momentum heavier than other criteria
- Value Line: 1 for safety; 3 for timeliness
- Scale is 1-5, 1 being best, 5 being worst
Okay, so this is the second time I’ve bought a company that fails more than one of my criteria. Why do I keep doing that, especially when there are other, better values out there? Doesn’t make sense, does it? Well, I was going to buy UNH, as my disclosure indicated. However, after completing that analysis, I read a good article on JNJ on SeekingAlpha. The author mentioned that despite beating estimates for earnings and revenue, the share price fell by over 2% on Tuesday, and another 1% at the open today. Why? Apparently, the US markets treated JNJ better than international markets, and there were some slight declines in consumer and medical device sales, and people didn’t like that.
It really made me think. Seriously, what? The company beat estimates and even raised its yearly forecast, and you’re complaining if miniscule declines in some sales, even though the company as a whole did well? I really don’t get why it’s such a terrible deal. JNJ is possibly the single best company to invest in in the world. It has a ‘wide’ moat (see Morningstar) and is well-capitalized (only 0.22 debt/equity). As proof of its quality, JNJ is one of three companies (JNJ, XOM, and MSFT) that still have a pristine ‘AAA’ S&P credit rating. The company has a five year estimated total return of 7.9% according to FAST Graphs, not bad for a blue chip this high quality. I could go on and on, but most of you probably know it for yourself.
I’m not going to lie, my position is much smaller than I would like, so if the market wants to be stupid about things … well, I do have that extra cash available. Besides, JNJ’s not a bad place to park money if things get worse out there. So at the end of the day, you can call me stupid, but I see this as an opportunity to buy one of the world’s best companies on a illogical dip. Although it’s not a back-up-the-truck buy, I added to my position, and definitely hope to add again soon. God willing, I’ll never have to sell, and my grandkids’ grandkids will be wealthy because of it.
This purchase will add $30.80 to my annual dividend income.
So what do you think? Did I overpay, even though JNJ is so high-quality? How have you taken advantage of the dip?
Disclosure: Long KMB, JNJ, MSFT. My portfolio page has been updated accordingly. Please read my disclaimer here before choosing to invest. Image source is available here.
16 Comments
DD,
I don’t know who would call you stupid for buying and/or owning JNJ, but they can call me stupid as well since it’s my largest position.
JNJ is starting to get interesting again. I hadn’t actually planned on adding anything to JNJ for quite a long time, allowing the rest of my portfolio to catch up a bit. But I may just have to bolster my position with another 15 shares or so here at some point if things continue like this. Hard to argue with the quality or long-term prospects. Great, great company.
Best regards!
Dividend Mantra recently posted…Create Your Own Miniature Berkshire Hathaway
Hahaha, I hope for it to be my largest position too. Valuation isn’t ideal for adding, but it really is getting attractive, and that’s why I changed my purchase plans. Thanks for stopping by!
DDeveloper,
Nice work buying some JNJ! A great company and a nice pullback of $12 (as I know it was around $107/share) allowed a nice purchase to happen. Great addition, you’ll love the consistently increasing dividend paying company! Cheers!
-Lanny
Dividend Diplomats recently posted…Mattel Stock Analysis (MAT) – Updated!
Hi Lanny! Yeah, I got really lucky there. Got a good purchase price in, and hope it’ll treat me and my descendants well. Thanks for stopping by!
JNJ is looking very attractive here. Wish I had more money to make some purchases!
Captain Dividend recently posted…September Dividend Update
Indeed it is! Gotta love those irrational dips. Thanks for stopping by!
You are right, valuation isnt attractive right now but this is a premium company, any minor correction needs to be taken advantage of. Any major pullback and we need to start pulling the trigger some more
great buy!
FFF
FrugalitytoFinancialFreedom recently posted…October Stock Purchase II
I agree. There are just some companies that never really get into true undervalued territory. With those, you gotta take advantage of any dip you can. Actually considering modifying my criteria to account for companies that have constant premiums attached to them due to quality. Thanks for stopping by!
Well, if you’re stupid for buying JNJ, then I’m stupid as well, since I just loaded up on 10 shares myself. Let’s be stupid together!
If they stay below $100 a share, I may just have to buy up some more again next month. Can’t say no to this kind of opportunity.
Seraph recently posted…Recent Buy
Haha, glad we thought alike! I’ll be keeping an eye on JNJ, and if it ever drops to the high $80s, I’ll really be interested.
Great buy, as you cannot really go wring with JNJ. I’m looking forward to adding it within the short term and hoping for a further dip in price. This market has been absolutely crazy lately, so it’s giving us some great buying opportunities.
Special Agent Dividend recently posted…Ford (F) Stock
Yep, JNJ basically defines ‘core holding’ to me. I just hope the decline continues!
Congrats on picking up a great company at a decent valuation. I am waiting for it to hit 3% yield before I pick up more shares (around the $93 level)
Happy investing
R2R
Roadmap2Retire recently posted…Disruption is “Just a Buzzword?
I’m sure it’ll get there in time. The drop just didn’t seem reasonable, so I added a bit. Thanks for stopping by!
You can’t go wrong with a good quality company like JNJ. Good buy. That company is on my radar.
Financial Forager recently posted…Recent Dividend Stock Purchase
Agreed. Thanks for stopping by!