Portfolio Update: New Addition (JNJ; February 09, 2015)

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The cash out refi won’t be funded until later this week, but I decided to get an early jump on deploying some of that capital this morning. I should have ~$94,000 to work with, and although I will set aside a portion of that for cash reserves, I do intend on utilizing the bulk of it for investments.

This morning, I put in a market order to purchase 50 shares of Johnson and Johnson (JNJ) for $99.97/share.

Johnson and Johnson is one of the finest dividend growth stocks out there and needs no introduction. As a Dividend Aristocrat, JNJ has rewarded shareholders by increasing dividends for 52 consecutive years. This is one of the few stocks where you really can simply ‘buy and hold’.

The current dividend yield is about 2.80% which is respectable. The current yield isn’t going to set the world on fire in the realm of dividend stocks, but oftentimes you have to pay a premium for quality. I have no problem doing that, and JNJ is a stock that I would like to make a Core Holding in my portfolio.

The 5 year dividend growth rate is a more impressive 7.4%. The forward P/E is about 16, with a 5 year average of 17.5. So, again, outside of a severe market correction or major company misstep, it’s going to be pretty tough for an investor to swoop in and ‘steal’ shares of JNJ. Cash-secured puts might be a good way to try and purchase the stock at a cheaper entry point, but since I’m just getting re-started with rebuilding my portfolio, I’m going to try and keep things a tad more simple for now.

In the near future, I will put together a Watchlist of stocks that I’m currently monitoring. In general, like everyone else, I like to try and find value with stocks, which typically occurs after the market pummels a company for missing earnings and the stock responds by tanking in the proceeding days… But I don’t believe there’s ever really a ‘one size fits all’ strategy for investing… Oftentimes, a high quality holding will just keep on going up, up, and up through the years…

But if you believe in the stock, there’s no need to overcomplicate things. With JNJ, I’m doing exactly that, and am simply going to ‘set it and forget it’.

Happy hunting!

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SpencerElroybillymarkFI Fighter Recent comment authors
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mark

Kudos on your fine stock pick. Healthcare is where you want to be right now and JNJ is a great foray into that. I hope you had the opportunity to load the truck up with some home builders. PHM is only up 10% since last tuesday (feb 3). DHI up 8%. These puppies are off to the races.

As I see you want safe and reliable throw WMT on your watch list. With gas prices so low consumers have more discretionary income = old wally world.

I am curious to hear your perspective on morality in stock investing. I will throw out the hypothetical of PM (phillip Morris a ciggerette jugernaught). They sport a healthy dividend of damn near 5%. Many people would not want to touch it because they do not support that industry or the product. Is investing (namely in stocks) an emotional decision?
*full disclosure I do not invest in PM or plan to because of my own objective perspective not because of morality.

Another example maybe BP. A company you know got smashed but will rebound but may have participated in unlawful/immoral practices.

Lets hear your thoughts on that.

thank fi

writing2reality
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Great minds think a like FI… picked up some shares this morning. A great company that should be in every DG investor’s portfolio.

My Dividend Pipeline
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FI Fighter,

Very nice buy. I have an order going through myself tomorrow with Sharebuilder. This is a certainly a cornerstone company like W2R alluded to above.

MDP

Tawcan
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Love this buy. I am hoping JNJ price will stay below $100 for a while so we can add to our existing position.

billy
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billy

question, are dividend stock price traditionally grow slower than non-dividend generating stocks? For example, if you hold JNJ for 20 years, assuming it grows about 5% each year in pricing, producing 3% dividend each year, and your tax rate is 25%, comparing you buy a non-dividend stock or fund, grow about 8% a year, and you pay 15% capital gain at the end of 20 years when you sell, your total net gain over 20 years should be much higher than that of dividend earning stocks. Am I missing something here?

mark
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mark

Billy,

good questions. you are really asking more about the tax code than growth in stock. check out this site: http://www.investopedia.com/ask/answers/12/how-are-capital-gains-dividends-taxed-differently.asp

having qualified dividends lowers your tax rate significantly the same way long term capital gains do.

The bennifet to companies NOT paying a dividend is that they get to take all of the excess cash and either use it to grow the business or buy more stock (driving the price of the stock up). That is certainly Warren Buffet’s strategy (BRK.A and BRK.B).

History has shown that companies that pay dividends tend to outperform their counterparts who do not. I would rather have a company with a great trajectory who does not have a dividend and x3 or x4 my money like apple for a long time than a company that is at it’s mature stage and is not really growing and I am only pulling 3% a year with little movement in the stock price. (Great for people who are older and need the security and steady income).

The best of both worlds is when you get both. GE during the crash went down to $9 I remember. Last year I bought Intel at $21 with a 4.25% dividend. (Recently sold out at $36.5).

keep doing research and asking questions.

mark

Elroy
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Not to mention the value end is getting dinged in taxes every year […]

Spencer
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Spencer

JNJ should net you fair, reliable returns.

Used to use David Van Knapp’s dividend spreadsheet as a starting point to help narrow down, but now I lean more towards Morningstar’s 10-year financial growth ratios (looking at PG was an eye opener). Truth is, as much as I love dividends, revenue and earnings growth is still key.

FWIW, top 5 for next 10 years: AAPL, NKE, V, HRL, BRK.A

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