Johnson Controls: The Lazy Man's Holding

It’s truly an unsung hero in my eyes, Johnson Controls (JCI), the $24B company that gives jobs to more 136,000 people has just announced they have raised the quarterly dividends by 18% for the 33rd straight year. I know past performance does not guarantee future results, but from all the lazy portfolios out there, JCI deserves a “thank-you”. The management at Johnson Controls has had 67 years of sales increases and they are going on their 18th consecutive year of earnings increases.

What makes JCI easy to own is its diversification. It’s like 3 investments in one, and each are still small enough to grow. The “Buildings” segment earnings account for half of the profitability of JCI and it’s been the more successful segment growing due to the demand for industry to be more environmentally conscious. The automotive sector is the weakest performing and the largest segment in terms of sales however margins on the power solutions make Johnson Controls a well oiled machine.

At $40 JCI is a bargain, and it’s likely because the stock is often labeled as strictly an automotive parts supplier. While it’s partly true, as discussed above it clearly is not. However, North American investors know the automotive industry is not growing at all, except China’s automotive production is up an estimated 25% according to Johnson’s management. Johnson Controls is one of the companies who is supplying automotive interiors and batteries to the companies producing these cars. So in a way, JCI is mislabeled for the exact reason it’s a safe way to add a piece of the growth in China to a lazy investor’s portfolio.

Another reason not to shrug JCI off as “just an automotive supplier” is the fact that they sell after market batteries. Whether or not people are buying new cars in North America, they still need to buy car batteries. These are repeatable sales, that people won’t “go without” if the economy slows down.

Looking to the future, the management has forecasted 10% increases in sales and 18% increase in earnings. The mean of the analysts at Marketwatch.com agree that company is being conservative and will outperform it’s own guidance. The company does have a track record of not missing earnings. From my experience it has been a question of ”If” and, “by how much will they beat guidance?”

Disclosure: I have a long position in JCI.