This is the second of my 4 weekly stock purchases in February via Sharebuilder’s automatic purchase plan. This week I added to my existing positions in three companies.
Emerson Electric Co
I used to work at Emerson Electric (EMR) – it’s a $40B diverse industrial company with 5 segments – Process Management (44% of FY14 Earnings), Industrial Automation (18%), Climate Technologies (17%), Commercial and Residential Solutions (10%) and Network Power (11%). Emerson isn’t particularly aimed at consumers but you may have come across the company from its popular InSinkerator brand.
EMR is justifiably proud of its dividend history, having increased its dividend for the last 58 years. Its shares currently give a yield of 3.2% from a dividend of $0.47 per share. It has a consistent increase pattern, raising dividends each November. The payout ratio decreased 3% from 2013 to 2014 and is currently 58% which is the high end of its range over the last 5 years. The dividend growth over the last 5 years has been 5.8% and the 5-year average dividend yield is below the current yield at 2.9%.
Its P/E of 18.7 is higher than the S&P Average of 17.9. The P/E has always been higher than the S&P’s average for each year since 2004 however and the current value is lower than last year’s 20 and 2013’s value of 25. Its projected EPS growth of at 8.1% over the next 5 years is down 1% from last November’s value.
Free Cash Flow has been positive over the last 10 years, with a low of $1.7B in FY2005 and a high of $2.9B in FY2014. The TTM Free Cash Flow is a little lower than last year at $2.8B.
EMR pays 3.9% of my projected annual dividend income, below my 5% limit.
Emerson posted its Q1 FY2015 results earlier this month with first quarter EPS of $0.75, beating the average analyst estimates and also last year’s $0.65 results. Net sales were flat however and total revenue was down 0.3% being impacted by currency rates and the sale of its Connectivity Solutions business unit.
Coca Cola (KO) really shouldn’t need any introduction – it’s one of the world’s most valuable brands; number 3 as rated by Forbes after Apple and Microsoft. KO has a market cap of $183B and Forbes values the Coca-Cola brand name as being worth $54B. In case you’ve recently arrived from another planet, Coca-Cola is the world’s largest producer of soft drinks and juice. From its namesake Coca-Cola to Sprite, Fanta, Powerade, Minute Maid and Dasani, it also markets Schweppes, Canada Dry and Dr. Pepper brands outside the US.
KO has increased its dividend every year for the last 52 years and like PG, it has increased them consistently, every March; this year being no exception. Its dividend of $0.305 provides a current yield of 2.9%. Payout Ratio has been increasing over the last 4 years and is currently 76%; the highest level of the last 10 years. Annualized Dividend growth over the last 5 years is 8.3% and the 5-year average dividend yield is 2.8%, below the current level.
KO’s P/E is higher than the S&P’s average of 17.9 at 23.6. Over the last ten years, KO’s P/E has always been higher than the S&P except for 2010 although the S&P average has been catching up over the last 3 years. Its projected EPS growth over the next 5 years is 3.6%.
Free Cash Flow has been positive over the last 10 years, with a low of $4.5B in FY2006 and a high of $7.9B in FY2013. The TTM Free Cash Flow for FY2014 is currently even higher at $8.3B.
KO contributes 1.6% of my projected annual dividends, well below my 5% limit for an individual stock.
KO beat analyst expectations in their 4Q earnings report this week with $0.44 EPS for the quarter beating last year’s $0.39. Net revenue decreased 2% in the quarter due to impacts of currency and structural changes.
Johnson & Johnson
JNJ is a $278B diversified healthcare company which operates in three segments: Pharmaceutical (39% FY13 Sales), Medical Devices (40%) & Diagnostics and Consumer (21%). It was formed in New Jersey by three Johnson brothers back in 1886.
JNJ has increased its dividend every year for the last 52 years, currently giving $0.70 a share for a yield of 2.8%. It’s likewise a very stable and consistent dividend growth stock, with dividend increases usually declared in April each year. Payout ratio is currently on a downward trend over the last 3 years and is at 45%, down from its all-time high of 64.6% in 2011. Annualized dividend growth over the last 5 years is 7.4%. The 5-year average dividend yield is 3.2%, above today’s level.
Its P/E of 16.8 is lower than the S&P’s average of 17.9. This value is lower than prior years 2011 through 2013 where JNJ’s P/E was higher than the S&P average. Analysts project an 5-year EPS growth of 5.8%.
Free Cash Flow has been positive for each of the last ten years with a low of $8.9B in FY2004 and a high of $14.2B in FY2009. TTM Free Cash Flow is $14.6B, higher than 2013’s $13.8B.
My JNJ shares currently contribute a total of 3.6% of my forward dividend income, well within my 5% limit.
JNJ’s 2014 annual results were published last month. While 4th quarter sales were down 0.6% (organic growth of 3.9% but currency rates had a 4.5% negative impact), the overall year represented an increase of 4.2% of sales over 2013. Earnings guidance from the company for full-year 2015 is $6.12 to $6.27 per share, a projected increase of 3.7%.
I chose JNJ to increase my allocation to the Healthcare sector. While it’s not an especially cheap stock, I think the price is reasonable especially considering the diversity and strength of JNJ. KO is likewise not a great bargain but I think it’s a reasonable price at the current dividend yield. EMR looks good value to me below $60 and the current price is below my average cost basis.
February Stock Purchase
So my purchase this week was
1.7454 shares of EMR @ $57.29 ($100)
2.3560 shares of KO @ $42.44 ($100)
1.0008 shares of JNJ @ $99.9 ($100)
With a average yield of 3%, this purchase adds $9 to my projected annual dividend income.
Quote of the day
Coming together is a beginning; keeping together is progress; working together is success.