Wednesday, November 6, 2013

Johnson and Johnson

I am putting up on my other blog my notes from the World Money Show 2013 in Toronto. I will put up these notes as I transcribe them here.

I do not own this stock Johnson and Johnson (NYSE:JNJ). I bought some of this stock in June 2005 and realized a year later, in June of 2006 that it was going nowhere for me and sold. I lost almost 17% of my investment. When I bought in 2005, all the analysts were saying that it was a good buy at that time.

As Canadians, we are told we should be buying US stocks for our portfolio. It is often recommended that we have at least 25% of our portfolio in US stocks. I have never followed this, although I have tried dipping into the US market, but I have never made any money there.

First let us talks dividends. This company has done well by its shareholders in dividend growth. However, for US shareholders the growth is better at 8.2% and 11.7% per year growth over the past 5 and 10 years. The growth for Canadian is 8.4% and 6.7% per year over the past 5 and 10 years. Growth should be better for Canadians going forward as our currency drops against the US dollar.

They have increased the dividends since 2008 by increasing the Dividend Payout Ratio for Earnings from under 40% to 62% in 2012. However, they have neatly sidestepped this issue by using an adjusted EPS. Using the Adjusted EPS, DPR ratios are lower at 47%. However, DPR for cash flow has also been increasing from under 30% to 43% for 2012.

Analysts have bought into the Adjusted EPS and I can find no estimates for EPS, just for Adjusted EPS and the Adjusted EPS are substantially higher. For 2012 EPS was $3.86 compared to Adjusted EPS at $5.10. If you look at growth, Adjusted EPS has done better also. Using the 5 year running average over the past 5 years the increase for EPS is 5.6% per year and for Adjusted EPS it is 7.1% per year.

Has this stock made money from its shareholders is another question to ask. Until recently, the 5 year periods from 2002 to date have not been good for Canadian shareholders. In 2002, the 5 year total return was 14.26% per year. Until 2012, the 5 year returns were very low or negative. The 5 year period ending in 2012 had total returns of 4.44% per year. The stock has gone up over 30% so far this year. The 5 year period to date has total earnings of 8.67% per year.

The 10 year total return to the end of 2012 was a miserable 0.55% per year. There was some 2.36% from dividends per year and a capital loss of 1.81% per year. The 10 year total return to date is better at 6.54% per year. There was 2.47% per year from dividends and 4.07% per year from capital gains.

US shareholders did slightly better with total returns to the end of 2012 at 4.07% and 5.52% per year. The portion from capital gains was at 1% and 2.81% per year and the portion from dividends at 3.07% and 2.7% per year. The Total Return to date is also better for US shareholders at 12.44?% and 8.99% per year with 9.30% and 6.31% per year from capital gains and 3.14% and 2.68% per year from dividends.

The outstanding shares have increased by 1.7% and .5% per year over the past 5 and 10 years. Shares have increase because of Stock Options and Share Issues and have decreased due to Buy Backs.

Using the 5 year running average, the growth in Revenue to the end of 2012 was 5.64% and 7.97% per year. This is respectable. Analysts expect that revenue will increase by 5.46% this year. The 12 month revenue to the end of September 2013 shows an increase of 4.9% above the revenue to the end of 2012.

Analysts expect the adjusted EPS to increase by 7.5% for 2013 and the Adjusted Earnings to the end of September 2013 compared to the end of 2012 shows an increase of 7.25%. The analysts' estimates do seem reasonable.

The Return on Equity has always been good and above 10% for this stock. The ROE for 2012 was at 16.2%. The 5 year median ROE is at 23.6%. The ROE on comprehensive income is close in 2012 with the ROE on comprehensive income at 16.5%. There have been some large variances in the past between Net Income and Comprehensive Income.

The last thing to discuss is debt ratios. The Liquidity Ratios have generally been very good with the ratio at 2012 at 1.90. The Debt Ratio is also good at 2.15. The Leverage and Debt/Equity Ratios are also good for 2012 at 1.87 and 0.87.

This certainly is a dividend growth stock. However, I think that the DPRs are getting too high as they have been increasing at a higher rate than earnings and cash flow. Also, what I do not like about this company is that the quarterly reports only give earnings and sales. The company does not provide full financial statements. See my spreadsheet at hse.htm.

This is the first of two parts. Second part will be posted on Thursday, November 7, 2013 and will be available here.

Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. The company's worldwide business is divided into three segments: Consumer; Pharmaceutical; and Professional. Its web site is here Johnson and Johnson.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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