Trades – Emerson Electric (EMR) and Johnson and Johnson (JNJ) Purchases

Trades - Emerson Electric and Johnson and Johnson - Building Blocks

As part of my process towards increasing and sharing my passive income, I post my trading activity for my dividend growth portfolios. As such, this past week on February 9th, I purchased 25 shares of Emerson Electric (EMR) and 20 shares of Johnson and Johnson (JNJ), two stalwarts of dividend growth. These are two companies you’ll find in many dividend investors toolbox, and are ideal building blocks for a solid dividend growth foundation. These transactions were the first purchase of either EMR and JNJ and  both were made in my taxable dividend growth account.

Emerson Electric (EMR) Trade Details

EMR is an industrial products company focused on five major areas of revenue generation, Process Management, Network Power, Industrial Automation, Climate Technologies, and Commercial and Residential Solutions. While not a sexy sounding business in today’s modern world, EMR has been a dividend growth cornerstone company, with 58 years of consecutive dividend raises. With EMR, you know you’re getting a well-run and diversified company that will consistently reward you for many years to come.

Traditionally viewed as a classic blue-chip company, EMR is a global power with over $24 Billion in annual revenues. With approximately 54% of their revenues being generated internationally, this is a really shows their global reach, and for an investor, provides exposure to the Asian and European economies. Unfortunately, over the last few years, there has been a flattening of revenues, however earnings growth has continued through the buyback of shares. Most recently, EMR has seen EPS grow from 2.76 per share in 2013 to 3.03 per share in 2014.

Below is a chart for EMR, showing the downward trend that this stock price has seen over the last five months. Dipping down to around $56 at the low, EMR is touching price levels that haven’t been seen since mid-2013.

Trades - Emerson Electric and Johnson and Johnson - EMR Chart

Returning back the dividends, EMR is a true Dividend Champion, having crossed the 50-year mark in consecutive annual raises back in 2006. Over the course of those years, there has been a tremendous amount of economic changes, yet EMR has persevered and grown. With a current annual dividend of $1.88 per share, EMR has a payout ratio just north of 60%, which is around the high end of what I like to see in a company. With the flat revenues, dividend increases have also been fairly low, however the most recent increase was a 9.3% raise, matching the nearly 10% increase in EPS from 2013. Going forward, I would expect the same to happen, as EPS increases, the dividend will increase a similar amount.

EMR becomes the third company in my dividend growth portfolios representing the Industrial Sector, joining General Electric and Deere and Company. I purchased 25 shares of EMR at a cost basis of $57.60 per share, net of commissions. With a yield on cost of 3.26% at the current dividend rate, my shares add $47.00 to my forward 12-month dividends. As timing would have it, this purchase was made in time to receive all four dividend payments in 2015. EMR has traditionally paid dividends in March, June, September, and Dec ember.

As a fair value comparison, Morningstar has EMR as 4-star buy currently.

Johnson and Johnson (JNJ) Trade Details

After buying Baxter International in November, I wanted to continue to build out my exposure to the healthcare sector. While not a screaming value, my purchase of JNJ finally gave me exposure to a company that I feel is a cornerstone company in any dividend growth portfolio.

JNJ is a diversified healthcare company with three primary revenue sources, Medical Devices and Diagnostics, Pharmaceuticals, and Consumer Goods. Unlike EMR, JNJ has seen anything but flat revenues over the past few years. This past year JNJ had global sales of $74.3 Billion, up from $61.6 Billion just five years ago in 2010. In addition to having some solid top line growth, JNJ has seen some solid EPS growth over the same time frame, with 2014 clocking in at $5.70 per share, above the $4.78 in 2010. Of course, the change from 2010 to 2014 wasn’t a smooth upward trend. While sales growth occurred each year, EPS did not gain traction, and in fact dipped, during 2011-12.

Consistently overvalued due to is wide-moat position in the healthcare sector, JNJ has seen some stock price weakness over the past few months. While we aren’t likely to have hit the bottom of the current slide in price, I was more than happy to open my position at the current levels, and would look to average down on continued weakness. Below is a chart tracking the stock price for JNJ over the last five months.

Trades - Emerson Electric and Johnson and Johnson - JNJ Chart

Johnson and Johnson has been raising their dividend for 52 years consecutively, making them the second Dividend Champion of this purchase summary. Sporting a 5-year growth rate of 7.4%, JNJ’s most recent dividend increase was for 6.1%, raising their annual dividend payment to $2.80 from $2.64 per share. Based on the 2014 EPS, this annual dividend equates to a payout ratio of 49.1%, giving JNJ plenty of room to continue growing the dividend as earnings expand or stagnate.

I purchased 20 shares of JNJ at a cost basis of $100.21 per share, net of commissions, giving me a yield on cost of 2.79%. With annual dividends of $2.80 per share, my purchase adds $56.00 to my forward dividends. As with EMR, this purchase was made prior to the ex-dividend date for the first dividend of 2015, ensuring I’ll receive four payments this year. JNJ has traditionally paid dividends in March, June, September, and Dec ember.

As a fair value comparison, Morningstar has JNJ as 3-star buy currently.

Trades Summary

While neither EMR or JNJ are at screaming deals, the opportunity to pick up shares and become part owner of two really impressive Dividend Champions was more than I could pass up. As I said earlier, I am happy to average down should prices drop significantly from here, but am satisfied to have entered into these two at the current levels. Combining both purchases, I’ve added $103.00 to my forward 12-month dividends, which is absolutely a step in the right direction with my goal being to hit $3,000 by the end of the year. Too early to finalize, but my current projections have me sitting just over $2,200 at the end of this month, so only $800 or so to go! This is going to be a pretty spectacular year for my passive income investments, and I’m thrilled I can share this with all of you, my readers and fellow investors

My Dividend Growth Portfolio and 2015 Dividend Calendar have been updated for these purchases.

What do you think about these purchases?

Flickr: Steve Depolo

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Comments

  1. W2R,

    I love the aggressive additions and you know I really love the idea of adding an extra $100 in dividend income. :-) I have noticed EMR on other people’s radar as well. I might have to take a closer look at it.

    • While certainly it doesn’t match your streak of $100 weeks in 2014, I’m happy to have been able to put a good bit of capital to work and will look to continue to do so throughout this year.

      Thanks for stopping by MDP!

  2. W2R,

    I like the additions a lot. Nothing sexy, just two solid dividend stocks that will perform great in the long run. Thanks for pointing out EMR to me, it is a stock that I always forget about! But a strong market leader with a phenomenal dividend history, sign me up! I am definitely adding this stock to my watch list based on its current valuation levels.

    Keep up the great work.

    Bert, one of the Dividend Diplomats!

    • EMR is definitely an under the radar stock given it doesn’t really do anything ‘sexy’ that might attract attention. Just chugs along rewarding shareholders. I’ll be watching to see if you or Lanny pulls the trigger any time soon!

      Thanks for stopping by Bert, I hope tax season is going well!

  3. A Frugal Family's Journey says:

    Nice buys W2R…Way to add $150 to your forward dividends!

    Both companies have been popular buys among DGI investors lately. Solid billion dollar companies with a great track record for dividend growth…what not to like? :)

    Keep up the great work! AFFJ

    • AFFJ, building that passive income nut, piece by piece. I’ve noticed a few others buying it as well, but wasn’t necessarily paying too much attention. Both jumped further up the food chain on my watchlist a while ago, and I’ve been hoping to snag some of each for a couple of years. This past week just happened to work out well.

      Appreciate you sharing your thoughts!

  4. W2R,

    Two of the finest companies out there, bud. Nice buys!

    Glad to be a fellow shareholder. Over five decades of dividend increases kind of speaks for itself, and both companies speak pretty loudly. :)

    $100 in dividend income all in one fell swoop is pretty sweet. Keep it up!

    Best regards.

    • Totally agree on the quality of companies in this round of additions. Both are Champions in every sense of the word.

      While I can’t guarantee nearly $4,000 worth of purchases each month (combining these with Loyal3 buys), I should be able to put quite a bit to work this year in these accounts, and for that I’m quite thankful.

      I appreciate your comments and support DM!

  5. Not much to say about these two purchases. I can say there is almost no controversy with either buy as both are super solid long term performers and dividend growers. Both are in my portfolio with a recent add to my EMR not long ago. Solid buys. Thanks for sharing.

  6. Nice purchases. The last two additions I made were to both of these companies. A couple of sleep well at night stocks IMHO. Enjoy them!

    Take care!

  7. W2R,

    How utterly boring! Seriously though, with the markets on fire, these are two old school champs that have pulled back off their highs. While I don’t have the green for a purchase right now, both EMR and JNJ are on my radar as targets for dividend reinvestment this upcoming week.

    • I know right? I need to spice things up a bit. Perhaps instead of building blocks, I should have put a suggestive picture up top with the disclaimer that nothing further would be as exciting. Hopefully the prices stay depressed while you accumulated dividends for reinvestment.

      Best wishes and thanks for stopping by DWC!

  8. Hi there! Great additions to your portfolio. I think dividend income is as passive as you can get with income, and I am definitely looking to do that too, some time in the future. Best of luck!

    • Dividends are indeed as passive as you can get. Outside of some long-term maintenance in ensuring that the companies you’ve invested in still meet your expectations and match your goals, there really isn’t too much time or effort required to bring in some solid income.

      Thanks for stopping by Felix.

  9. W2R,

    Very nice purchases. I am long JNJ, and would like to be long EMR too. Still you were able to pick up both a great price. For JNJ anything $100 ish or lower is a great move.

    Enjoy that money working for you,
    Dividend Gremlin

    • Happy to be a fellow shareholder in JNJ, and would be happy to add more if it drops further in price. Hopefully you find some value in EMR and can make a move, they’re every bit a dividend champion.

      Thanks for reading and sharing your thoughts.

  10. JNJ just made my top 10 list for February. My fair value estimate is $100.65, so this is a good buy here!

    I’d like to add to my holdings, but only below $95 per share. That would raise my cost basis to about $91.

    EMR looks attractive — I’ll need to check it out! Thanks for sharing!

    • Good to see JNJ in the top 10 list! Seems I squeaked in right under the fair value price. If I’d waited a day or two I’d have gotten it another dollar or two lower, but at the end of the day I’m happy with my entry point and will continue to add positions and capital to those companies that best fit where I want to go with my portfolio. Seems like you’ve got a great starting point for JNJ from a basis perspective, and I’ll follow along and see if you end up checking out EMR.

      Thanks for stopping by FerdiS!

  11. Great purchases W2R. I also added JNJ this week and have been adding it for the last few weeks as the price tends to remain below or around $100. EMR has also been very popular lately and many dividend investors are adding it. I don’t hold any position and it does look attractive. I need to look more into EMR.

    • I haven’t really been paying too much attention to who else might be buying EMR, but have been closely monitoring them over the past couple of months. Any time you can slide a dividend champion into the portfolio is a win in my books. To have added two? Even better.

      Thanks for stopping by and best of luck building up your portfolio!

  12. I was wondering when you were going to post about EMR. Nice pick up on JNJ as well. Good price points for both!

    It will be a little bit before I can finish topping off my Roth for 2015. I just went through my taxes and will, unfortunately, owe some additional taxes this year from what was already withheld. At least that was due to making some extra money moonlighting as well as selling some AAPL stock at a big capital gain, so it wasn’t totally unexpected. These extra taxes will also slow my funding of my new Lending Club account as well. Thanks to your article I recently signed up for that!

    • Thank you Scott, I think the prices were both fair for what I’m getting in return. At the end of the day, I doubt I will regret either purchase or the rewards that owning these great companies will provide.

      Sorry to hear about the tax pain, but congratulations on moving forward with Lending Club. Feel free to let me know if you have any questions as you pursue an investment strategy.

      Best wishes and thanks for stopping by.

  13. Very solid buys. I plan to pick up some JNJ shares once we have some cash in the RRSP. Plan to accumulate enough JNJ eventually so we can enroll in DRIP.

  14. Great moves! I picked up JNJ last week as well and was also eyeing EMR. I’ll be watching both closely and will probably pick up some more shares this week.

    Happy hunting!

  15. Nice adding! Couldn’t go wrong with these two. Enjoy the paycheck! ;-)

  16. I’m in the healthcare so I’m a bit wary of getting into healthcare stocks. :P or biotech companies. But I’m slowly desensitize myself from it. I have JNJ, TEVA, and Amgen on my radar. Will see how it’s going to go as I add more capital this year.

    Goodluck.

    • I can certainly understand not wanting to have too many eggs in one basket, such as owning too much stock in your employer. However, unless you work for JNJ, or any other particular dividend paying healthcare stock, you really aren’t double dipping. Your healthcare job will likely be exposed to different risks than a well-diversified company like JNJ, so owning them isn’t doubling down on healthcare tremendously. Of course, I am just speculating, so you might not be in the situation I’m projecting.

      Thanks for the visit and sharing your perspective; best of luck as you add capital this year.

  17. Both great purchases W2R! And a nice addition to your dividend income. Keep up the good work!

  18. Seem like some pretty solid purchases to me. Have you considered buying AT&T? That seems to be a favorite of most dividend investors.

    • I’ve considered buying AT&T several times, but each time don’t feel I’m getting a lot of value based on the current price at the time. I was very close to pulling the trigger when things dipped down to 52-week lows back in December, but ended up reshuffling my portfolio and adding some other strong players. At the end of the day, I’ll likely end up with both AT&T and VZ in my portfolio in some level.

      Thanks for stopping by and commenting.

  19. Both are solid purchases. I recently added some shares of JNJ too.

  20. W2R,
    I added 10 shares of JNJ last month at 101.52, I might be forced to add an extra 10 more shares if the price continues to fall from here. Just like what you said, JNJ is consistently over valued and we are paying fair price right now. Thanks for sharing your recent trades!
    Take care,
    FFF

    • JNJ just happens to be one of those perpetually “overvalued” stocks due to the high quality nature of the company. I’m happy to have started a position here and will look to add to it in the years to come.

      Thanks for following along and commenting!

  21. W2R,

    Great purchases! Love that you added over $100 to your future dividend income with just two purchases.

    I believe you picked a great time to get into JNJ as it likely won’t get any cheaper. We always pay a premium for the bluest of blue chips, but currently I think JNJ is fairly valued.

    Keep it up,
    NMW

    • NMW, I’m definitely happy with my entry point on JNJ, and wouldn’t mind adding some more if prices stay around $100 per share. I’d also like to add to my BAX position if given the chance.

      Thanks for reading and stopping by!

  22. congrats on your addition of forward income! I really like looking at stock purchases as future income it really helps to keep an on the long term.

  23. Very nice buy. I just read a fantastic arcticle on seekingalpha why EMR will return 7% constantly…and why the oil price decline will not hurt it much…http://seekingalpha.com/article/2958506-why-emerson-electric-returns-7-percent-per-year-for-long-term-dividend-investors-despite-low-oil-prices

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