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.
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.
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.
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
What do you think about these purchases?
Flickr: Steve Depolo