Is it a good company at a reasonable price? The stock price is probably reasonable, but at the higher end of the reasonable range. It has always made money for its shareholder, but sometimes the return has been low. So, it is a good company to own. In this market, you would probably want to get something cheap and this stock is not current cheap.
I do not own this stock of Johnson and Johnson (NYSE-JNJ). 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. 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. By the chart below, I bought it at the wrong time.
When I was updating my spreadsheet, I noticed sales were a bit short of what was expected in 2021, so estimates for 2022 and 2023 were lowered. Expected sales for 2021 was $94,279 and they came in at $93,775. Estimates for 2022 and 2023 were lowered from $97,743M and $101,520M to $95,034, and $97,686. The same thing happened to EPS. EPS for 2021 was expected at $8.29 and came in at $7.84. EPS for 2022 and 2023 were lowered from $9.30 and $9.79 to $7.97 and $8.78.
If you had invested in this company in December 2011, for $1,049.28 you would have bought 16 shares at $68.58 per share. In December 2021, after 10 years you would have received $522.08 in dividends. The stock would be worth $2,737.12. Your total return would have been $3,259.20.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $68.58 | $1,049.28 | 16 | 10 | $522.08 | $2,737.12 | $3,259.20 |
When I was updating my spreadsheet, I noticed that this spreadsheet had total return every 5 years starting in 1995. I noticed that between 2005 and 2012 inclusive, the 5 year total return was negative. Also, looking at long term total return, the shareholders who bought 15 and 10 years ago have the worse total return. See the chart below. This is in US$
| End Date | Tot. Ret | Beg Yield | Beg P/S | Beg P/E |
|---|---|---|---|---|
| 12/31/99 | 29.69% | 2.06% | 2.24 | 17.55 |
| 12/31/00 | 21.28% | 1.50% | 2.94 | 22.98 |
| 12/31/01 | 20.38% | 1.45% | 3.11 | 23.82 |
| 12/31/02 | 11.93% | 1.31% | 3.85 | 27.72 |
| 12/31/03 | 5.42% | 1.16% | 4.70 | 39.54 |
| 12/31/04 | 7.89% | 1.17% | 4.56 | 31.72 |
| 12/31/05 | 4.44% | 1.18% | 5.05 | 32.63 |
| 12/31/06 | 3.75% | 1.17% | 5.56 | 32.53 |
| 12/31/07 | 6.82% | 1.50% | 4.35 | 24.59 |
| 12/31/08 | 6.05% | 1.83% | 3.59 | 21.09 |
| 12/31/09 | 2.83% | 1.73% | 3.98 | 22.33 |
| 12/31/10 | 3.52% | 2.12% | 3.71 | 17.37 |
| 12/31/11 | 2.79% | 2.20% | 3.59 | 17.71 |
| 12/31/12 | 4.07% | 2.43% | 3.12 | 18.37 |
| 12/31/13 | 12.04% | 3.00% | 2.61 | 13.10 |
| 12/31/14 | 13.27% | 3.00% | 2.87 | 14.64 |
| 12/31/15 | 14.06% | 3.41% | 2.75 | 12.96 |
| 12/31/16 | 15.30% | 3.43% | 2.75 | 18.79 |
| 12/31/17 | 18.01% | 3.42% | 2.90 | 18.16 |
| 12/31/18 | 10.08% | 2.83% | 3.62 | 19.04 |
| 12/31/19 | 9.67% | 2.64% | 3.92 | 18.35 |
| 12/31/20 | 11.82% | 2.87% | 4.04 | 18.74 |
| 12/31/21 | 11.01% | 2.73% | 4.34 | 19.43 |
| Current | 2.64% | 4.71 | 21.90 |
The dividend yields are moderate with dividend growth low. The current dividend yield is moderate (2% to 4% ranges) at 2.64%. The 5 year, 10 year and historical median dividend yields are also moderate at 2.65%, 2.83% and 2.37%. The dividend growth over the past 5 years has been low (below 8% per year) at 5.9% per year. The last dividend increase was low at 6.6% and occurred in 2022.
The Dividend Payout Ratios (DPR) are fine. The DPR for 2022 for EPS is 54% with 5 year coverage at 75%. The DPR for Adjusted Earnings per Share (AEPS) for 2022 is 43% with 5 year coverage at 45%. The DPR for Cash Flow per Share (CFPS) for 2022 is 40% with 5 year coverage at 50%. The DPR for Free Cash Flow (FCF) for 2022 is 56% with 5 year coverage at 52%.
Debt Ratios are fine. The Long Term Debt/Market Cap Ratio for 2022 is 0.07 and is good. The Liquidity Ratio for 2022 is low at 1.35, but if you add in Cash Flow after Dividends, it is good at 1.62. The Debt Ratio is good at 1.69. The Leverage and Debt/Equity Ratios are fine at 2.46 and 1.46.
The Total Return per year is shown below for years of 5 to 33 to the end of 2021 in CDN$. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2016 | 5 | 4.66% | 9.74% | 6.99% | 2.74% |
| 2011 | 10 | 8.74% | 16.02% | 12.47% | 3.55% |
| 2006 | 15 | 7.91% | 9.69% | 7.15% | 2.54% |
| 2001 | 20 | 8.12% | 6.04% | 4.20% | 1.85% |
| 1996 | 25 | 9.92% | 10.09% | 7.65% | 2.45% |
| 1991 | 30 | 11.19% | 11.70% | 8.99% | 2.72% |
| 1988 | 33 | 11.67% | 15.21% | 11.40% | 3.82% |
The Total Return per year is shown below for years of 5 to 33 to the end of 2021 in US$. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2016 | 5 | 5.87% | 11.01% | 8.23% | 2.78% |
| 2011 | 10 | 6.42% | 13.29% | 10.06% | 3.22% |
| 2006 | 15 | 7.31% | 9.18% | 6.55% | 2.63% |
| 2001 | 20 | 9.36% | 7.57% | 5.39% | 2.18% |
| 1996 | 25 | 10.23% | 10.53% | 7.95% | 2.57% |
| 1991 | 30 | 10.81% | 11.17% | 8.62% | 2.55% |
| 1988 | 33 | 11.37% | 14.64% | 11.09% | 3.55% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 21.28, 24.17 and 26.35. The corresponding 10 year ratios are 18.08, 19.97 and 22.06. The corresponding historical ratios are 16.55, 19.17 and 21.54. The current P/E Ratio is 21.46 based on a stock price of $171.05 and EPS estimate for 2021 of $7.94. The current ratio is between the median and high ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I also have Adjusted Earnings per Share (AEPS) data. The 5-year low, median, and high median P/AEPS Ratios are 14.60, 16.72 and 18.31. The corresponding 10 year ratios are 14.32, 16.12 and 17.66. The current P/AEPS Ratio is 17.02 based on a AEPS estimate for 2022 of $10.05 and a stock price of $171.05. The current ratio is between the median and high ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a Graham Price of $71.50 . The 10-year low, median, and high median Price/Graham Price Ratios are 1.83, 2.12 and 2.34. The current P/GP Ratio is 2.39 based on a stock price of $171.05. The current ratio is above the high ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive. The P/GP Ratio is rather high. Any ratio above 1.50 is generally considered high.
I get a 10-year median Price/Book Value per Share Ratio of 4.92. The current ratio is 6.00 based on a stock price of $171.05, Book Value of $74,599M and Book Value per Share of $28.51. The current ratio is 22% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive. The P/B Ratios are on the high side also.
I get a 10-year median Price/Cash Flow per Share Ratio of 6.73. The current P/CF Ratio is 16.14 based on Cash Flow per Share estimate for 2022 of $10.60, Cash Flow of $2617M and a stock price of $171.05. The current ratio is 140% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get an historical median dividend yield of 2.37%. The current dividend yield is 2.64% based on dividends of $4.52 and a stock price of $171.05. The current dividend yield is 11.5% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median dividend yield of 2.83%. The current dividend yield is 2.64% based on dividends of $4.52 and a stock price of $171.05. The current dividend yield is 6.8% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
The 10-year median Price/Sales (Revenue) Ratio is 4.22. The current P/S Ratio is 4.71 based on a stock price of $171.05 and Revenue estimate for 2022 of $95,034M and Revenue per Share of $36.32. The current ratio is 11.6% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
Results of stock price testing is that the stock price is probably reasonable, but at the high end of a reasonable range. The 10 dividend yield test says it is reasonable, but above the median. The P/S Ratio test confirms this. The P/AEPS Ratio test says the same thing. Some of the other tests show the stock price as expensive.
When I look at analysts’ recommendations, I find Strong Buy (6), Buy (3) and Hold (13). The consensus would be a Buy. The 12 month stock price consensus is $181.90. This implies a total return of 8.99% with 6.34% from capital gains and 2.64% from dividends based on a stock price of $171.05.
Analysts’ recommendations in 2022 are mainly buys at Stock Chase. Stock Chase gives this stock 5 stars out of 5. David Jagielski on Motley Fool thinks this company is a buy because of its solid financials. Demetris Afxentiou on Motley Fool thinks this stock is one of the safest US stocks for Canadians to buy. The company put out a Press Release on their 2021 results. The company put out a Press Release on their third quarter of 2022 results. An article on Bloomberg talks about Abiomed Inc being bought by JNJ. Simply Wall Street lists no risks for this company.
Johnson & Johnson's biggest strength is its diversified business model. It operates through pharmaceuticals, medical devices, and consumer products divisions. Its diversification helps it to withstand economic cycles more effectively. Its web site is here Johnson and Johnson.
The last stock I wrote about was about was Cenovus Energy Inc (TSX-CVE, NYSE-CVE) ... learn more. The next stock I will write about will be Innergex Renewable Energy (TSX-INE, OTC-INGXF) ... learn more on Monday, November 7, 2022 around 5 pm.
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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
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