Retirement Strategy: A Safe Dividend King With An Upside Potential Of Nearly 50% (NYSE:JNJ)

Retirement Strategy: A Safe Dividend King With An Upside Potential Of Nearly 50% (NYSE:JNJ)

It has been a very long time since I have gotten a “feeling” about the potential breakout of any stock.

To me those “feelings” are reserved for market speculators on small penny stock bets. Well this is not a high risk penny stock and even if my theory is off base, investors will still own a dividend king, mammoth global leading, healthcare stock that has fabulous fundamentals, if they choose to hold! Perhaps I am just excited to see one of my all time favorite companies have a shot at strong capital appreciation while continuing paying a very safe 2.85% dividend yield that has been increased and paid for more than 50 consecutive years!


My Thinking

We are in the grip of a pandemic that has turned the global economy up side down and has thrown 10s of millions of people out of work and many more living a very small life within the confines of their homes. Fearing simply going out to visit with family and friends! Combine that with having to wear a hazmat outfit just to throw the garbage out and We are left waiting for a miracle just to get back to our normal everyday lives.

We also know that there is a full court press for the pharmaceutical industry to come up with some sort of vaccine, quickly. Even our administration has developed a program called “Warp Speed” which has a short list of companies that have shown some real promise on some of their potential vaccines.

The finalists—from AstraZeneca, Merck, Pfizer, Johnson & Johnson and Moderna—have a clear Big Pharma slant, with biotechs like Inovio and Novavax being left off the list. Moderna is the smallest company among the group, but the biotech is pressing ahead into mid- and late-stage testing with its mRNA candidate at a record pace.

The vaccine programs selected will get access to additional government funding, clinical trial assistance and manufacturing help, the Times reports, citing senior administration officials. Already, Johnson & Johnson, Moderna, AstraZeneca and Merck have scored federal funding for their projects.

We’ve all heard the “buzz” about Moderna (MRNA), but there has not been that much talk about the biggest elephant in the room-Johnson & Johnson (JNJ). Its company CEO, Alex Gorsky, has promised to have human trials in JULY, and is confident it can produce a safe and effective vaccine by the end of the year at the latest! JNJ is already investing in the production of 1 BILLION vaccines in early to mid 2021!

J&J said earlier this year that if the vaccine works well and is safe it could produce 600 million to 900 million doses by April 2021. The company said Wednesday it is committed to the goal of supplying more than 1 billion doses globally through the course of 2021, provided the vaccine is safe and effective.

I am the last person to take on huge risk, however, just think about this for a second: Let’s say my opinion doesn’t work out and the vaccine fails. What do we have left? Well how about a dividend king that has paid and increased its dividend for 57 consecutive years and still has a payout ratio in the 50’s.

ChartData by YCharts
  • $3.80/share annual dividend paid as of now.
  • 58% FORWARD payout ratio right now
  • A nearly 6% annual dividend growth rate over 57 YEARS!
  • A huge pharmaceutical company that has faced all of its headwinds and has come out whole on the other side.
  • Is off its 52 week high by 8-10%, and has a fundamental chart as per Fidelity Investments that looks like this:

I couldn’t make a chart up in make believe land like this! Valuation is LOW, Quality is HIGH, and JNJ is MORE than simply financially healthy!

How about an ESS rating, also provided by Fidelity, of this:

Some More Key Stats To Pick Over

Why not just have a look at this chart:

More than impressive, even though they have talcum powder issues!

What If JNJ Comes To Fruition?

Well that is the trillion dollar question isn’t it? If the vaccine JNJ is working on turns out to be safe and effective, and already has production ramped up what will the share price do? I have no idea, but look at it this way. The median cost of a virus hospitalization is enormous! Check this out right here:

The median cost of a coronavirus hospitalization is $14,366.

Multiply that by millions of patients and the potential savings alone to our healthcare costs would be astronomical. Even though right now JNJ has promised to provide the vaccine on a cost basis, what do YOU think the share price of JNJ would climb to just based on this victory alone? In my mind, the share price might just be priceless!

Is $175/share silly? How about $250/share? Well as far as my prediction, I think a share price of $200 is not unrealistic for a company that has saved the world! Both health-wise, and economically.

Yes, I Know That JNJ Is Above The PRIP “Buy Zone”

The new Pandemic Retirement Income Portfolio does show that JNJ is somewhat above its buy zone price. That being said, if you do your own research you might conclude, as I have that the stock is a BUY right now with a strong potential for capital appreciation IF my thesis proves to be correct.

PRIP consists of the following stocks: Johnson & Johnson (JNJ), Procter & Gamble (PG), Microsoft (MSFT), Apple (NASDAQ:AAPL), AT&T (T), Walt Disney (DIS), PepsiCo Inc (PEP), Con Edison (ED), Exxon Mobil (XOM), Realty Income (O), and Altria (MO).

Here is the most current chart as of 6/11/2020, 11:00 AM:

(This will be updated in my next article)

Just take a peek at some of the ETFs that are currently invested in JNJ:

Now, How about total ownership of all shares:

Nearly 70% of all outstanding shares are held by institutions. Another 3% owned by mutual funds. The float of shares for “us” retail investors is just 25-30%! As far as I am concerned, this stock has the potential to become a double whammy…..a dividend king of 57 years, AND a capital appreciation potential it has not seen in a very long time!

My Bottom Line

Obviously there are risks. You now will have a choice of holding the shares within your new core portfolio and having one of the greatest dividend kings of all time as a steady income producer for retirement, if the vaccine fails and the share price takes a hit, or you can take your lumps and dump the “speculative” shares.

If I was still in the market, my choice would be to hang on to JNJ, forever anyway…..even though in this case you will be buying at a share price above my personal buy zone price.

To me, this is the type of risk I can even live with and I am a big “scardy cat”!

So, tell all of Seeking Alpha what YOUR thoughts are about this potential opportunity. I have already said, that to me, it’s a buy!

Not To Bore You, But…

Knowledge is power, and many folks shy away from the investing world because that very world makes it more confusing each and every day in an effort to sell you something.

My promise to you is that my work here will remain free to all of my followers, with the hope of giving to you some of the things that took years for me to learn myself. That being said, let me reach out to you with my usual ending:

One final note: The only favor I ask is that you click the “Follow” button so I can grow my Seeking Alpha friendships. That is my personal blessing in doing this, and how I can offer my experiences to as many regular folks as possible who might not otherwise receive it.

Additional disclosure: Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author used in his past worked for him, and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Originally published on Seeking Alpha

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