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Johnson and Johnson Dividend Analysis (JNJ) 2010

Company:Johnson & Johnson
Ticker: JNJ
Current Price: ~$63.57
Annual Dividend: $2.16
52-Week Hi/Lo: $66.20/$56.86

Dividend Yield:

Price:Yield:
Hi$66.203.263%
Current$63.573.398%
Lo$56.863.799%

Looking at that table, it’s easy to see that this Dividend Aristocrat has a very healthy dividend yield. I typically uses 3% as my minimum required yield when screening companies. The dividend yield has seen a good amount of fluctuation in the last year. Much of this is due to some legal issues that they’ve been running into with recalls and other drug issues.

Dividend Increases

JNJ is a Dividend Aristocrat, which means that they’ve raised their dividend for 25 consecutive years.  Looking at the last 10 years they’ve most certainly done that.  It looks like they’ve raised the dividends 12.987% on average over the last 10 years.  Be sure to scroll down to the “Graphs” area to view the charts we’ve made for you.

Dividend Coverage Capabilities

What good is a dividend if it can’t be sustained?  A good way to examine if a dividend is sustainable is to look at the Dividend Payout Ratio (DPR) and Earnings Per Share growth.  If the DPR is too high, then this could create a liquidity problem.  Additionally, the company may not be investing into itself enough for proper growth and stability.  If the EPS is unable to grow at the same rate or faster, then the company will be eating more and more into its earnings to cover the dividend payment.  This will eventually lead to a high DPR which means there could be a liquidity problem in the future.

Looking at JNJ it does appear that earnings haven’t kept up with dividend increases.  Looking at the 5-year period of 2005-2009, JNJ was able to grow EPS by an average of 8.47%, but dividends grew by an average of 11.49%.  This has allowed the DPR to hover between 39%-46%.  Being that this is under my 60% cap, I’m OK with this DPR, but JNJ will need to really work on the earnings to get this number down.  A low DPR is better than a high one, because it gives room to increase dividends even if you have a rocky earnings year.  Below are some graphs to provide visual perspective.

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Summary

JNJ is a good company with a household name, who has been around for a long time.  They’ve been through some of the hardest times in America’s history and I believe they will continue to.  Even though they’ve hit a rough patch with some legal issues and the economy combined, I believe they will come out stronger in the end.  They’ve definitely been through harder times.  I’m confident that JNJ is a strong dividend play that can be picked up somewhat cheaply right now because of the current climate surrounding them.

Disclosure: Long JNJ, this is not an endorsement, invest at your own risk.

This article is a part of our free Stocks that Pay Dividends Training Course. Check it out now!

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