One Dad Stock Index – Johnson & Johnson
Johnson & Johnson One Dad Stock Index Analysis.
Johnson & Johnson (JNJ) is an iconic company. It is a hugely influential, wonderfully successful business that keeps on keeping on. It is also a Dividend Aristocrat that has increased their dividend for 54 years in a row. That is a quality business with a fantastic history.
This will be a great company to profile using the One Dad Index.
For me, being financially independent is having your money work for you. As you pay off ‘life debt’ such as mortgages, raise children, weddings etc., the long game is developing multiple streams of income with the idea that one day you no longer require trading your time for income and you can say good bye to the 9-5 dog and pony show for good.
One of the safest ways to be financially independent is to have multiple sources of income – I think 30-40 high quality, dividend paying corporations is the way to do that and Johnson & Johnson is one of the best.
So, lets get to it – how will Johnson and Johnson fare with the One Dad Index?
First up is the One Dad Quality Index. It is made up of 4 measures, Size, Moat, Quality & Management. This is the most subjective of the sub indexes but I also think may be the most crucial one to get right. A reminder is that each category has a possible value from 0 to 5 with 5 being the best possible score.
Johnson & Johnson One Dad Quality Index (ODQI)
Size 5; Moat 4; Quality 5, Management 4
One Dad Quality Index Score of 4.5
Johnson & Johnson is a huge company so 5 was an easy call here.
Moat is a good score as well. A fantastic brand and 7 year protection on new drugs combine to give it a 4.
Quality is unquestionably a 5. The company is a stalwart in both the business and financial communities.
Management rounds out the scoring with a 4.
An overall ODQI score is 4.50 is very, very good. Johnson & Johnson is unquestionably a Quality company.
Johnson & Johnson One Dad Financial Index (ODFI)
Johnson and Johnson has a D/E ratio of 0.3875 – This is a great score but important to know that Johnson & Johnson has been increasing their debt as of late. It appears they are ramping up stock buybacks while interest rates are low. Probably a wise thing to do but all the same we will hope the debt continues to be well managed. Important to remember that JNY has a AAA credit rating which is very rare for a corporation to have. Have to go with a max score here of 5 with all things considered.
The ROE is an important measure by any standard. JNJ’s ROE is currently running at 22.78% which is excellent by any measure.
Revenue Growth: 3
Revenue Growth has varied quite a bit. There have been divestments and other anomalies but you can’t get away that revenue growth has been pretty stagnant. The stock buybacks isn’t able to mask this measure.
EPS Growth: 3
EPS growth hasn’t been spectacular either. Fiscal 2016 was not a great year for this but appears to be an outlier.
A pretty good financial Index score. Not as strong as maybe I expected but strong all the same. If one of the major credit agencies institutes a negative watch on the credit rating I will revisit accordingly.
Johnson & Johnson One Dad Dividend Index (ODDI)
Dividend Quality: 5
JNJ’s dividend is bullet proof. 5.
Dividend Growth: 3
JNJ’s 5 year dividend growth rate is 7%. It has been slowing down the past few years, but still solid.
Dividend Yield: 3
As of this writing, the dividend yield is 2.59%. Not spectacular but mostly a function of great share price keeping pace, and over taking the dividend growth rate. When compared to the 10 year treasury and keeping in mind the AAA credit rating, it is not easily dismissed.
Payout Ratio: 4
The dividend payout ratio of 0.58. This is very conservative and considering a company that doesn’t have an outsized ability to depreciate assets is quite impressive. The Dividend to cash flow is very good as well. Operating Cash in 2016 was 18.77 billion and dividends paid was 8.62 billion. This works out to ~46%. As dividends are paid from cash and not earnings this is a good double check to perform and in JNJ’s case makes the payout ratio look even stronger.
A good Dividend Index result. The Quality is there – the growth has moderated.
All the One Dad Sub Indexes are very good. Depending on what you are looking for, be it Quality, Financial Strength and dividend, JNJ looks like a great company. At the very least this makes JNJ a company to hold on to if you already own it – but it is a buy at today’s prices?
Johnson & Johnson One Dad Valuation Index (ODVI)
Forward 5 Year EPS Growth: 3
6.09% – A respectable growth rate – does that correspond with today’s price?
Trailing 12 month P/E: 3
A trailing 12 month P/E ratio of 21.04 is lower than I expected actually. It’s borderline to being a 2 but keeping in mind the market and this being JNJ I am stretching to give it a 3.
Johnson is a fantastic company that is a little pricey at the moment. Not outrageously by any means and I would be added on weakness. It is a definite hold for anyone with a current position. Collect the dividends and SWAN (Sleep Well At Night).
I hope this analysis provided two things:
- Provided a comprehensive, easy to understand look at JNJ
- Demonstrated the One Dad Stock Index and how it is used.
Please let me know what you think of both Johnson & Johnson and the ODSI.
I will be running this analysis over the next few months on all of my current holdings and then on to the watch lists. I am also happy to run this analysis on a company outside of my holdings & watch list on request. As I complete these individual Analysis I will be posting the comprehensive look at all of the analysis on one page as well. My Goal is to be able to have a comprehensive, up to date list that you can sort on the sub index that is important to you at the time. With one click you can sort by the criteria, Quality, Financial Strength, Dividend Quality and Value that is most important to you at the time.