Johnson & Johnson (JNJ) is widely recognized as one of the highest quality blue-chip dividend paying stocks on the planet. Consequently, the market has historically placed a premium valuation on its shares. However, since the great recession of 2008, the market has been pricing this blue-chip company more in line with its earnings justified valuations. We believe this represents a long-term opportunity to invest in and accumulate this high quality dividend growth stock for above-average current yield and the opportunity of moderate capital appreciation and an increasing dividend income stream. Moreover, we believe that today's historical low valuation mitigates the risk of investing in this blue-chip.
This article is intended to look at Johnson & Johnson's "essential fundamentals at a glance" through the lens of the F.A.S.T. Graphs™ research tool. Therefore, rather than reinvent the wheel, we direct the readers to two articles written by fellow Seeking Alpha Contributors: Johnson & Johnson's Mishaps Mask A Great Business At A Reasonable Price by Tim Travis and Johnson & Johnson - A Stock For Dividend Investors Only, No Capital Appreciation Expected by Qineqt.
A Live F.A.S.T. Graphs™ on Johnson & Johnson
The F.A.S.T. Graphs™ on Johnson & Johnson illustrates that this blue-chip dividend growth stock can be purchased at a sound valuation. Therefore, we rate Johnson & Johnson a buy based on the following fundamental metrics:
· a PE ratio of 14.2, which is on the low end of its historical norms since 1999 versus its normal PE of 20.4
· a price to sales ratio of 3.00, among its lowest since 1999
· the company's healthy financial condition is a plus with debt only 16% of capital and strong free cash flow generation
· a payout ratio of approx. 40%, low relative to most large-cap multi-nationals
· a current dividend yield of 3.4%, which is high in today's low yield interest rate environment
Moreover, in order to conduct your own research and get a clearer perspective on Johnson & Johnson's valuation, click on the picture above that links you to a fully functioning sample F.A.S.T. Graphs™ on Johnson & Johnson and research this high-quality large-cap growth stock deeper and faster. May we also suggest running the Funds From Operations (FFO) as a long-term option (15 or more years).
Run this "tool to think with" through its paces. Use the tan navigation bar to the left of the graphs and draw multiple graphs ranging from 2 to 20 years of history. Discover how this tool instantly provides a clear picture of the business behind the stock and dynamically re-evaluates valuation and reveals the clear correlation between the company's earnings and price.)
Note: This link will be live for 90 days beginning October 22, 2012. For more advanced instructions on how to utilize the live graph follow this link.
Summary & Conclusions
Johnson & Johnson is our large-cap dividend growth stock value idea of the week. At its current quotation, Johnson & Johnson is trading at what appears to be a fair valuation relative to its growth potential. This is a long-term call for investors seeking above-average capital appreciation that can be purchased at a reasonable price. Consequently, we believe this is an attractive candidate worthy of further due diligence.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.
Disclosure: I am long JNJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.