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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


May 1st 2009 Johnson and Johnson
NYSE Symbol: JNJ
Industry: Pharmaceuticals
Price as of May 1st: $52.59

Even in these tough times, there are blue chip defensive companies maintaining or raising their dividends. In the last several months, I've featured a dozen companies that have raised their dividends in the last year. The list includes 3M, McDonalds, Kraft, Travelers, Kimberly Clark, Heinz, Caterpillar, P&G, Sysco, Valero Energy, Abbott Labs, and Coca Cola.
This week I'll feature a lucky thirteenth that raised their dividend two weeks ago. The featured stock of the week is blue chip Dow component, Johnson and Johnson or J&J. (As a side note three Dow components have raised their dividend in the last two weeks, J&J, IBM, & ExxonMobil) Better know for their Tylenol, Band-Aids, and shampoo brands, J&J turned in a stellar performance in 2008 while the rest of the market crumbled. Last year, J&J reported sales growth of 6% while earnings rose 22%. J&J was the sixth most profitable member of the Fortune 500 in 2008 with a market cap surpassed by only five other companies. Today, J&J remains one one of four companies outside the financials to have maintained a triple A debt rating. However, J&J isn't immune to the economic slowdown. Sales may decline this year for the first time in 76 years. Profits may also decline for the first time in 25 years, but don't worry about the dividend. J&J has now raised their dividend for the forty-sixth straight years. J&J was recently highlighted in Fortune magazine and counts Warren Buffett as a major shareholder.
In the middle of April, J&J reported first quarter net income of $3.5 billion, or $1.26 per share, down modestly from last year, but beating estimates by 4 cents. Revenue fell just over 7 percent, to $15 billion, due to slumping sales of consumer health products, prescription drugs, and medical devices. The stong dollar also hurt sales. 2009 will not be the banner year that 2008 was. The analyst at Citgroup expects 2009 to be the toughest year for J&J in a decade. In the earnings conference call, J&J outlined total sales for the year to be $60 billion to $61 billion, just below the January forecast, and below 2008 revenue of $63.8 billion. On the earnings front, J&J has a forecasted range from $4.45 to $4.55 per share, excluding one-time items. Last year, J&J made $4.51 a share. Looking forward, J&J's pharmaceutical pipeline still looks promising. Timely approvals and successful launches should better position J&J for a reacceleration of growth in 2010 and beyond.
J&J currently trades for 2.2 times sales, 11 times earnings, 10.4 times 2010 earnings estimates, and 3 times book value. As mentioned, the company raised their dividend last week, sporting a yield of 3.9% and goes ex-dividend in three weeks.