Monday, July 9, 2012

Johnson & Johnson (JNJ) dividend analysis


From above analysis,

1) Solid financial health.  JNJ is a solid company and most of us should be concur on this point.

2) Market price valuation is at $63.16.

3) Payout ratio is very high, at 63%, which is out of my criteria range of less than 50%.

4) Yield is high, at 3.6%.

5) Dividend growth is optimal.  5-year dividend growth at 9.11%, 10-year dividend growth at 12.39%.


In the past 32 years , JNJ maintained a good history record of increasing dividend every year versus previous year.


With 10-years annual dividend growth rate at 12.39%, we can achieve 9.95% yield on cost even without considering dividend reinvestment.  If we wait till the market price pulls back a little to $63, we can achieve 10.59% within 10 years.  If considering dividend re-investment, the percentage will be much higher.

Disclosure: Long JNJ.

3M Co (MMM) dividend analysis

From the above analysis,
1) MMM financial performance is very healthy.
2) Current market price is slightly higher.  I would say $85~$86 is a reasonable entry price.
3) Payout ratio is nicely positioned at less than 40% of earnings and FCF.
4) Yield rate is 2.70%, lower than my criterion at 3%.
5) 5-year dividend growth is 4.6%; 10-year dividend growth is 5.99%.  So the dividend growth trend is slower in recent years. I would say 5.5% dividend growth is more reasonable to expect in the coming years.


From above two charts, without considering dividend reinvestment, in 10-year's time frame, yield on cost will be 3.83% based on dividend growth rate 5.99%.  While the 10-year yield on cost will be 3.35% based on dividend growth rate 4.6%.

With this stock, I can't achieve my goal of 10% yield on cost within 10 years time frame. However, if the price is cooled down, I may purchase some shares to diversify my portfolio. My entry point will be in the range of $81-$85.  At purchasing price at $81, the dividend payment could be doubled in 10 years.

Disclosure: None.  Will purchase some qty at the price range of $81-$85.

Sunday, July 8, 2012

Colgate-Palmolive Company (CL) dividend analysis

From above analysis, CL price is currently overvalued, the reasonable entry price is around $91.

Current yield is 2.40%, which is lower than my criterion at 3%, which can be improved by waiting for a better entry price.

Annual dividend growth is acceptable at >12% for both 5-year dividend growth and 10-year dividend growth.

Also, CL is a highly leveraged company with Debt/Equity >2.

Disclosure: None. Plan to wait patiently for a reasonable entry price.

My check list for dividend growth stocks

First of all, I'll only focus on S&P 500 Dividend Aristocrats and S&P High Yield Dividend Aristocrats.


For each stock, here is how I'll do the analysis.


Company financial analysis:-

1) ROE (Return on Equity) >15%.
2) Debt / Equity <50%.
3) FROIC (Free Cash Flow / Total capitalization) >15%.
4) Cap Flow (capital expenditure / operating cash flow) <50%.
5) T. Rowe Price Ratio (Return on Equity / (1-payout ratio)) >15%.
Source: here.

Stock price valuation:-

1) Price to owners earnings (=price / (FCF/outstanding shares))  <15.
2) Current P/E ratio should be less than 5-year average P/E ratio.
3) Current market price should be less than DCF valuation.
4) Current market price should be less than Graham valuation.

Dividend analysis:-

1) Payout ratio <50%.
2) Dividend / FCF <50%.
3) Yield >3%.
4) 5-year dividend growth rate & 10 year dividend growth rate should both be > 8%.

Monday, July 2, 2012

Company Analysis -- Procter & Gamble update

In Feb, I wrote this article for Proctor & Gamble.  I mentioned that When the next quarter result comes out, the market might be leak out a chance for patient buyers to go in. I still think $63 or lower is a good entry point.  Currently, the market price is lower than $63, which render a very good opportunity for long term investors.  


The reason for current price drop is mainly as following:-


"Wednesday, June 20, 5:21 AM P&G cuts FQ4 guidance, citing slower-than-expected growth in developed markets and forex fluctuations. P&G forecasts adjusted EPS of $0.75-$0.79, vs. prior guidance of $0.79-$0.85 and consensus of $0.82. Net sales to fall 1%-2% vs. +1%-2% prior. For FY 2013, P&G predicts a percentage increase in profits of flat to mid-single-digits. (PR)" 


This article provided very good analysis for PG.


Disclosure: I am long PG.