5 Reasons To Buy Johnson & Johnson


With new cases of the coronavirus spiking in the US and worldwide.

With the already historic unemployment levels and job losses in recent months.

With massive uncertainty in hospitals, banks, and other industries.

And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.

There are few safe places to invest your capital today.  And this number is growing smaller every day this crisis lasts.

The key to continue compounding your investments and build wealth is to keep investing well over time.

Most people think the number one way to do that is to invest in assets that will grow your capital over time.

And this is huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep.  And the more capital you keep the faster you can invest well to grow your wealth.

In recent articles I’ve shown you several stocks to avoid investing in…

Today, I want to show you 5 Reasons To Buy Johnson & Johnson.

Johnson & Johnson (JNJ) is the world’s largest healthcare firm.  And it has 3 major divisions…

  • Pharmaceuticals
  • Medical Devices and Diagnostics
  • Consumer Health

You’re probably most familiar with its consumer health brands some of which are seen in the following picture.

In other words, JNJ helps keep the world healthy… And has for decades.

The company is based in New Brunswick New Jersey.  It has a $393.8 billion market cap making it one of the 15 largest companies in the world as of this writing based on market cap.  And it also pays a 2.7% dividend.

This is reason #1 to buy JNJ to Depression Proof Your Portfolio.

Johnson & Johnson’s 2.7% Dividend

Over the last decade JNJ’s paid out a total of $28.82 per share in dividends.

At today’s share count of 2.671 billion shares that’s equal to $76.98 billion paid out to shareholders in the last decade.

Plus, in the last decade it grew its dividend 82.9% from $2.11 per share in 2010 to $3.86 per share now.  This is an annual dividend growth rate on average of 8.3% per year.

These dividend payments will help you in normal times earn cash if you take the money out.  Or allow you to buy more shares over time if you reinvest the dividends.

And you should continue to count on these dividends for your retirement as well because Johnson & Johnson is one of only 29 “Dividend Kings” in the world.

A Dividend King is a stock that fits the following criteria…

  • It’s a member of the S&P 500.
  • The company has paid AND increased its dividend for 50+ years.

JNJ is one of only 29 Dividend Kings on Earth which means you should continue expecting dividend payments and dividend increases over time.

These regular payments will help you earn more money for your retirement.  And these solid, stable, and growing dividends will help in any kind of prolonged economic issues like we’re dealing with today.

It can do this because it earns huge profits and cash flows.  Which is reason #2 to buy JNJ to Depression Proof Your Portfolio.

JNJ Earns Huge Profits

Over the last decade it earned an average operating income margin of 25.8% per year.

I look for anything above 10% on a consistent basis so JNJ surpasses this number.

Why 10%?

Because after evaluating thousands of companies over the last 13+ years of my career I estimate fewer than 5% of all companies in the world produce consistent operation profit margins above 10% over long periods of time.

This makes JNJ a great operating business.

But it also means the company earns enough money from its operations to continue investing in the business for growth… Without having to issue debt or equity.

Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 21.3% per year on average.

I call this the “Cash Machine” metric.

I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.

If companies are consistently above 5% on this number, it makes the company a cash machine that spits out more and more cash from its operations.

JNJ surpasses my thresholds on both important metrics and that makes it an incredibly safe investment.

These profits also allow it to continually reinvest in operations.  And to pay you a large and growing dividend as well.

Its large profits and cash flow and growing dividend payments over time make JNJ a safe income play in whatever is to come in the next few months or years.

But these profits also allow another layer of safety because JNJ’s business should be largely protected from negative effects of the coronavirus… Which is reason #3 to buy its stock.

The Coronavirus Won’t Harm JNJ

People may stop paying their mortgages.

They may stop paying their credit cards.

They may stop paying their vehicle loans.

And they may stop paying their student loans.

Because of the mass unemployment caused economic issues we’re now dealing with people may stop paying these things if they need to.

But people won’t stop using Johnson & Johnson products to improve their health.

This was illustrated when JNJ released its most recent quarterly report on July 16th, 2020.

Revenue only fell 10.8% from the 2019 2nd quarter to the 2nd quarter of 2020.

And most of this was due to a fall in its medical devices segment when people were forced to put off elective surgeries due to the coronavirus.

With restrictions on elective surgeries in various cities and states lifting around the US, sales should pick back up in this segment.

And even with this, in the last 12 months JNJ has still produced $17.4 billion in free cash flow.

While many other companies’ revenues, profits, and cash flows are getting crushed by the coronavirus… JNJ still performed solidly.

This shows the power of the company and its ability to survive and thrive during this pandemic… No matter how long it lasts.

It gives enormous stability to the company in these highly uncertain times.  And it also means you should expect JNJ to continue earning enormous profits and cash flows.

And this means you should expect the large dividend payments to continue as well.

But what do these profits and cash flows mean for JNJ’s debt levels?

JNJ’s Low Debt

As of this writing its debt to equity ratio is 0.4

I look to buy companies that have a debt to equity below 1.

Why?

Because the lower debt levels the company has, the lower chance it has of going bankrupt.  And this makes it a safer investment.

Generally, the more profits and cash flow the company produces the higher its debt levels can be without becoming problematic.

The key words being can be above.

Because of JNJ’s continued fantastic profits and cash flow its able to have ultra-low debt levels. And this makes investing in its stock even safer.

But what about its valuation?  Is it cheap? 

JNJ Is Cheap

This is reason#5…

With the markets at or near all-time highs you’d expect a fantastic stock like JNJ to be selling at an enormous valuation.

But it’s not.

As of this writing its P/E is 26.2.

Its P/CF is 19.2.

And its forward P/E is 18.9.

On all three metrics I look to buy investments below 20 to consider them undervalued.

This means, at its current valuations that JNJ is slightly undervalued to about fairly valued.

This means JNJ stock offers you a margin of safety in investing terminology.

A margin of safety means you’re buying a safe investment… And this makes the investment even less risky.

Usually great stocks like Johnson & Johnson never sell at around their fair value so this is a great time to consider buying its stock.

These 5 reasons combined, make investing in JNJ stock an ultra-safe investment for you to consider buying today.

Conclusion

If you’re looking for a solid, safe, stable, dividend paying, cheap, and enormously profitable investment to Depression Proof Your Portfolio – consider investing in Dividend King Johnson & Johnson.

Click here to see some of the other stocks we recommend to Depression Proof Your Portfolio.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

0 Shares:
You Might Like
You May Also Like