The market has been climbing a wall of worry this year and the economy is teetering on an ugly recession. The fact that the yield curve is steeply inverted (see chart below) has contributed to recent bank failures (Silicon Valley and First Republic), and more things in the economy are going to break. That said, the stock market tends to recover well before the recession is over. In this report, we share five attractive dividend stocks that are particularly compelling from a contrarian standpoint considering the share prices are down, the dividends remain strong, and we expect both (share prices and dividends) to get even significantly better over time.
25 Big-Dividend Healthcare Stocks: These 3 Are Worth Considering
It makes a lot of sense for income-focused investors to look beyond simply the current dividend yield and to also consider profitability and growth. In this report, we share data on 25 big-dividend healthcare stocks, including also data on earnings and revenue growth. We then highlight a few names from the list that we believe are particularly attractive and worth considering for investment—if you are a long-term income-focused investor.
Johnson & Johnson: Bedrock Dividend Growth? Time to Sell Calls?
Johnson & Johnson is one of the most revered dividend aristocrats (it has raised its dividend 58 years in a row). The company has incredibly strong fundamentals derived from its well-diversified three-pronged business model that contributes to consistent profitability and a strong balance sheet. It is one of only two AAA-rated companies (the other being Microsoft), signifying its extremely strong capacity to meet financial commitments. Johnson & Johnson’s share price hit a four-year low during the March downturn, but has since rebound and is now trading near all-time highs. Is Johnson & Johnson sill a buy at any level? Is it time to sell covered calls? We answer these questions in the conclusion of this article after first providing a detailed review of the health of the business, valuation, risks and dividend safety.
New Options Trade: Johnson & Johnson Asbestos Fear, High Income Opportunity
Jonson & Johnson is a healthy blue chip dividend aristocrat. The shares have already inappropriately been beat up this year. And they just sold off another 6.2% on Friday thanks to overblown fear related to an irrelevant trace of asbestos found in a lot of its baby powder. These fear-driven factors have combined to create an attractive income-generating options trade opportunity, as described in this report.
Despite Big Market Gains, Lots of Attractive Opportunities Remain
The market (SPY) has been on fire this year (+21.4%), however plenty of very attractive long-term investment opportunities remain. This week’s Weekly shares the performance of each of our holdings across all three of our strategies, and then provides concise commentary on attractive opportunities among REITs, healthcare, growth stocks and our high-income low-beta “Alternative Fixed Income” strategy. We conclude with a little advice.
3 Blue Chips For Strong Income, Plus Price Appreciation
One of our favorite long-time members (HB from Texas) recently asked “If you had to pick two or three securities for primarily income, but good candidates for capital growth, which would they be?” He mused REITs, MLPs, preferred stocks and bonds. For your consideration, this article includes three blue chip ideas that we consider attractive right now because of their strong income, as well as their potential for healthy price appreciation to boot.
A Blue Chip Among Blue Chips—With A Healthy Growing Dividend
If you’re looking for wild aggressive growth, this stock is NOT for you. If you’re looking to “sleep well at night” while also receiving steady growing dividend payments and a share price that will likely rise more than enough to offset the dangers of inflation, then this blue chip among blue chips is worth considering. We’ve owned it for years, it has performed very well, and we expect its strength to continue for many years into the future.
This Blue Chip Dividend Grower is Attractively Priced
Johnson & Johnson: Dividend Powerhouse, New ACA Risks
JNJ is an absolute dividend powerhouse having increased its dividend for more than 50 years straight. However, the company faces new and increased uncertainty risk in light of a Republican House, Senate and President-elect that seem determined to repeal the Affordable Care Act (ACA). In addition to its attractive growing dividend payment, significant long-term capital appreciation potential, and reduced risk via its large and diverse revenue base, we believe JNJ could eventually benefit from reduced regulatory burden under a modified ACA, but is now the right time to buy?
Our 28 Favorite Stocks: July Performance Review & Outlook
In this week’s Blue Harbinger Weekly, we provide a brief performance review and outlook for each of the 28 holdings across our Blue Harbinger strategies. We also provide access to a members-only report on our “Top 3 Covered Call Stocks.” Lastly, you’ll notice we’ve updated performance though the end of July, and all three Blue Harbinger strategies continue to significantly outperform.
Top 5 Donald Trump Stocks Worth Considering
This week's Blue Harbinger Weekly is a continuation of our free report titled Ten Donald Trump Stocks Worth Considering. Specifically, we provide detailed reports for each of the top five stocks. We believe each stock offers a particularly attractive dividend yield and significant price appreciation potential. Without further ado, here are the top 5 Donald Trump stocks worth considering...
Upcoming Earnings Announcements: Plenty of Upside Ahead
In this week’s Weekly, we review the Blue Harbinger stocks that announced earnings last week (they completely knocked it out of the ball park), and we explain why we believe they’ll continue to deliver very big gains going forward. We also review the Blue Harbinger stocks that will be announcing earnings over the next two weeks, and why we believe they too will deliver terrific results. Also worth noting, this weekend Barron’s announced it is “Time to Buy Bank Stocks.” We highlight our favorite bank stock in particular.
Year-End Rebalancing and Great Opportunities
Time to sell your winners and buy the losers? Some contrarians might think so. With 2016 right around the corner, it can be helpful to see what has and has not been working, and why. For example, Caterpillar has been a persistent loser (as we wrote about here), and Nike and McDonald’s have been big winners this year. This week we review the Dow Jones stocks we do own (and why), and our view on when it’s prudent to rebalance.
Are You Diversified?
Johnson & Johnson (JNJ) Update - Earnings, Currency and Buybacks
In Johnson & Johnson’s (JNJ) earnings release yesterday the company highlighted the impacts of foreign currency, raised its full-year earnings guidance, and announced a $10 billion share buyback program that will be funded with debt. Overall, the company is in very good shape, and we believe it is a great blue chip stock to own.
Regarding the impacts of foreign currency, JNJ’s revenues declined 7.4% in the quarter versus the same quarter a year ago, but unfavorable currency rates were responsible for 8.2% of the decline. Said differently, revenues were up 0.8% in constant currency terms. For reference, about half of JNJ’s sales are overseas, which has had an unfavorable impact as the US dollar strengthened. However, this is par for the course for JNJ (in future quarters foreign currency will work in their favor), and it is no reason for alarm.
Regarding full-year guidance, we are encouraged that they raised their earnings outlook to $6.15 to $6.20 a share, excluding certain items, up from an earlier range of $6.04 to $6.19. Growing earnings is a sign of health and it is good for investors.
Finally, the company announced that it plans to buy back up to $10 billion of its own stock, or about 3.7% of the shares outstanding. JNJ will issue debt to fund the buyback which causes concern to some people even though it should not. Like most companies, JNJ uses some debt (leverage) to fund its operations because it can earn a higher rate of return on the money than it pays for interest on the debt. And borrowing to repurchase shares is common, and the result is that it levers long-term returns for stock holders if the company is profitable, which it is.
Overall, we continue to believe in Johnson & Johnson as a great long-term investment. Not only does it offer attractive returns opportunities, but it adds important diversity to our Blue Harbinger 15 portfolio. You can view our full Johnson & Johnson thesis here.
Johnson & Johnson (JNJ) - Thesis
Rating: BUY
Current Price: $95.06
Price Target: $122.60
Thesis:
Johnson & Johnson is a blue chip among blue chip companies, and now is an excellent time to buy. JNJ has an amazing track record of increasing its adjusted earnings for 31 consecutive years and increasing its dividend for 53 consecutive years. The dividend yield is currently an attractive 3.2%, and the stock price has recently pulled back making now a great time to buy.
Overview:
Operating across its three main segments (Consumer, Pharmaceutical, and Medical Devices), the company is home to many names you’ve heard of (e.g. Band-Aid, Tylenol, Listerine, Visine) and many other great health care products people rely on around the world (you can view the company’s products here). In fact, Johnson & Johnson sells products in virtually every country in the world. The company’s global sales gives investors an added level of diversification beyond just the diversified products and business segments. In 2014, JNJ had $74.3 billion in total sales. Forty-three percent of the sales came from the Pharmaceutical segment, 37% from Medical Devices and the remaining 20% from the Consumer segment.
Valuation:
We value JNJ using a 50/50 combination of discounted free cash flows and Ben Graham’s (EPSx(8.5+2xGr)) formula. In both valuations, we assume the company can grow at 5% per year. The average 5-year earnings growth estimate of the 19 professional analysts included on Yahoo Finance is 4.96%. We believes JNJ provides will benefit from a global demographic trend which the company aptly explains as follows: “the historic aging rate of the world’s population, along with a growing middle class around the world, brings dramatically greater demand for higher quality health care” (Annual Report, p.3). Our discounted cash flows analysis uses a 9% required rate of return (CAPM derived), and values JNJ at $131.54 per share. Graham’s formula assigns the company a $113.65 price per share. We use the average of the two to value JNJ at $122.60, which is well above its current price.
Cash:
JNJ has a history of returning cash to shareholders through dividends and share buybacks. As mentioned previously, the dividend has increased for 53 consecutive years. In aggregate, the company paid $7.8 billion for dividends in 2014. They also repurchased $7.1 billion of its own stock (this is another way to return cash to shareholders).
Buying Opportunity:
JNJ’s stock price is down this year for two main reasons, and the fact that it is down makes now a good time to buy. First, JNJ is down with the rest of the broader market. As bad economic data out of China and jitters about the US Federal Reserve’s upcoming interest rate hike have hit JNJ just like almost every other stock in the market. And second, JNJ earnings are being hurt by foreign currency fluctuations. Specifically, the strong US dollar makes international sales less profitable for the company. However, these two things make JNJ more attractive now than it was before because the broad market pullback is only temporary (the world will go on) and foreign currency volatility is stabilizing. (currency markets have been highly volatile since the “Great Recession” on 2008-2009).
Conclusion:
The main reason most individual investors buy Johnson & Johnson stock is for the dividend. It’s a steady stable company, and the dividend payments keep rolling in quarter after quarter. However, the stock also offers the opportunity for capital appreciation. And while there is no guarantee the stock price will go up tomorrow, this month, or this year, we believe strongly it will go up over the long-term. As the company says “the historic aging rate of the world’s population, along with a growing middle class around the world, brings dramatically greater demand for higher quality health care,” and JNJ is a leader in meeting these needs.