Jonson & Jonson and Intel financial analysis

Probably some of you already noticed that our Investment portfolio was diversified with two US shared with 2017 Q1 investments. And natural question arises – Why? Why US stocks, why these two Jonson & Jonson and Intel? I understand that it might sound silly, why I’m writing the reasons, but I think that it is a good thing to write about what you are doing and to do it in public. That makes you more disciplined and to think twice about what you are doing 🙂

First of all I want to share two pictures:

20170429_073621

Its a Simple Stupid logic – I use these companies products. Laptop that I use has Intel processor and I found 2 Jonson and Jonson products in our bathroom. So these companies are not just US stocks, they are Global companies with their products sold all around the world, even in our little Baltic country 🙂 I like this investing technique called – know what you own. Meaning that you should invest not only into numbers but also touch and evaluate their products and I have to say Intel is the best at PC processor manufacturing and Jonson and Jonson at making medical stuff.

Then we move on to a bit more tangible stuff like their matrix:

  • Dividends: JNJ is one of dividend champions paying and increasing dividends for more then 50 years in a row with quite reasonable YOC 2,7% and a payout ratio of 54%. INTC has 25 year track record of dividend payments, but was not increasing their dividends during 2012-2015 so is not so popular among dividend investors, but they renewed dividend increase since 2016 and that’s ok to me. Intel has also quite reasonable YOC 3,1% and payout ratio of 50%.
Jonson & Jonson Y2012 Y2013 Y2014 Y2015 Y2016 TTM
Earnings Per Share USD 3.86 4.81 5.70 5.48 5.93 5.93
Dividends USD 2.40 2.59 2.76 2.95 3.15 3.15
Payout Ratio % 62.1 56.7 45.0 55.6 54.4 53.1
Intel Y2012 Y2013 Y2014 Y2015 Y2016 TTM
Earnings Per Share USD 2.13 1.89 2.31 2.33 2.12 2.12
Dividends USD 0.87 0.90 0.90 0.96 1.04 1.04
Payout Ratio % 40.8 48.6 42.8 40.7 47.9 49.1
  • Earnings: JNJ has stable and growing Sales and Net income and also still reasonable P/E of 19,7 at the time shares were bought. INTC has not so stable growth and a bit struggling on Sales and Net income growth but their P/E was very attractive at 16,7 level. I have faith in this company for the future that they will manage to produce PC stuff that people need for generations to come.

EPS

  • Balance sheet: Both companies have very strong balance sheets and i’m a fan of strong balance sheet as I think that this is as important as generation of Sales, Net Income and Dividends if looking at very long perspective. Over-leveraged companies will struggle with growth, they will have to repay loans and pay Interest, which will hurt their abilities to pay dividends and grow. So JNJ have Equity ratio of 50% and cash stockpile higher then their financial debts. Intel have also very great 58% Equity ratio, but bit less cash reserve. Still NetDebt/EBITDA ratio is just 0,4x meaning that company would be able to fully repay all of their debts from cash at hand and generated cash flow (EBITDA) in just 5 months.
  • Share value: Another thing that I really like about both of these companies is that their Equity do not decline like most of other companies that use cheap loans and drain their Equity. JNJ Equity has decline a bit from USD 74bn back in Y2013 to USD 70bn, but if taking into account decline of share number Equity/share remained at almost same 26USD/share level. If we compare it with share purchase price of 117USD difference translates to 91USD which is equal to 14Y EPS of ~6USD which is still a reasonable level. Liabilities line has increased from USD 58bn to equilibrium of USD 70bn. Personally I would like to see it the other way around, but using cheap loans is also a reasonable thing especially when you have stack of cash that is higher then all companies financial debts. INTC is however a good example on this spot – their equity has increased from USD 58bn back in Y2013 to USD 66bn in Y2016. If taking into account share buy-backs that decreased their number from 5bn to 4.7bn Equity/share has increased from  11,7USD/share to 14USD/share and that’s almost Δ+20% during last 4 years. This is what I like to see at really sustainable companies. Compared to purchase price of 35,3USD difference 11,3USD  translares to just 5Y EPS of ~2,4USD. Another reason why I bought INTC.

So these are the reasons behind my decision to own small portion of these international giants that i’m sure that will be around for another 50 of so years and will generate me some nice growing passive income in form of dividends 🙂 Would be extremely great if you could share your investments and the logic why you invested in thous companies.

2 thoughts on “Jonson & Jonson and Intel financial analysis

Add yours

  1. Johnson and Johnson is one of the favorite companies I own. My investment philosophy is similar to yours. I invest in what I know. I used to own Johnson and Johnson when the stock price was under $50. I hate myself for selling those shares, but they say there’s no point in crying over spilt milk.

    I like intel also but I don’t have that stock as yet in my portfolio. It’s funny, because after reading your post, I realize that the computer I’m writing this comment on also has an intel logo on it. Buy what you know. Great advice.

    Like

    1. Thanks DP glad that my toughts are useful to some people out there 🙂 Wow JNJ for 50$, you had 7% yield right now. What year was that? I think JNJ is a bit overpriced right now but compared to other dividend stock like PG, KO or MSFT (p/e >30!) this is still within some logical range.

      Like

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