Bear Market Stock to Buy: Johnson & Johnson (NYSE:JNJ)
Johnson & Johnson (JNJ) could have the best record of consistency of any publicly traded corporation.
The company has paid increasing dividends for 53 consecutive years, and has 31 consecutive years of adjusted earnings-per-share growth.
As one would expect from such a stable business, Johnson & Johnson marched through the Great Recession of 2007 to 2009 without missing a beat. The company saw earnings-per-share grow each year of the Great Recession:
– 2007 earnings-per-share of $4.15
– 2008 earnings-per-share of $4.57
– 2009 earnings-per-share of $4.63
Additionally, the company’s stock realized total returns of 5.8% (versus -15.9% for the S&P 500) from 2007 through 2009.
Johnson & Johnson is a high quality dividend growth stock. The company has compounded earnings-per-share and dividends at 5.6% and 8.9% a year, respectively, over the last decade.
Investors in Johnson & Johnson should expect slow and reliable growth of around 6% a year combined with the company’s current 2.9% dividend yield for total returns of around 9% a year.
Johnson & Johnson is currently trading at a forward price-to-earnings multiple of 16.0 – this is below the S&P 500’s forward price-to-earnings ratio of 17.3. Johnson & Johnson (JNJ) appears somewhat undervalued at this time relative to the S&P 500.
Johnson & Johnson has also witnessed declining sentiment among the top institutional investors tracked by Insider Monkey, with the number of money managers long J&J sliding to 74 from 78 during the turbulent third quarter. Those investors were also underweight shares of J&J, owning just 1.50% of them. Ken Fisher was also the top shareholder of this stock in Insider Monkey’s database, which could indicate he sees some of the same qualities in these stocks as Sure Dividend does.
Bear Market Stock to Buy: General Mills, Inc. (NYSE:GIS)
It’s rare for a stock to offer both market-beating total returns and low stock price volatility.
General Mills is just such a stock (as is Johnson & Johnson).
Over the last decade, General Mills has an annualized stock price standard deviation of 17.0%.
There are only 3 large cap stocks with 25 or more years of dividend payments without a reduction that have lower stock price volatility. They are listed below:
– Southern Company (SO) – stock price standard deviation of 16.8%
– Consolidated Edison (ED) – stock price standard deviation of 16.7%
– Johnson & Johnson (JNJ) – stock price standard deviation of 16.2%
General Mills, Inc.(NYSE:GIS) stock price volatility is in the same league of high quality dividend paying utility businesses.
In addition, the company has one of (if not the most) impressive dividend histories of any stock.
General Mills has paid steady or increasing dividends for 115 years.
General Mills, Inc.(NYSE:GIS) is one of the few businesses to grow earnings-per-share each year through the Great Recession of 2007 to 2009. The company’s earnings-per-share through the Great Recession are shown below:
– 2007 earnings-per-share of $2.30
– 2008 earnings-per-share of $2.50
– 2009 earnings-per-share of $2.78
The company’s well-branded consumer food products see demand increase during recessions. That’s because consumers tend to dine out less during recessions, and eat at home more.
Source: General Mills Annual Shareholder Meeting Presentation
You can see from the image above that the company expects to grow revenue in the low single digits; between 1% and 3% per year.
Operating income is expected to grow in the mid single digits; between 4% and 6% a year. This means the company is expecting margin improvements of around 3 percentage points a year.
Adjusted diluted earnings-per-share are expected to grow in the high single digits; between 7% and 9% a year.
In addition to this earnings-per-share growth, General Mills’ stock currently has a 3.1% dividend yield for an expected total return of 10% to 12% a year.
Long-term double-digit total returns are not an aberration for General Mills… They are the norm.
The company has averaged 11% total returns a year from 1995 to 2015. For comparison, the S&P 500 has generated total returns of 9% a year over the same time frame.
General Mills is currently trading for an adjusted price-to-earnings ratio of 18.9. The company appears to be trading at or below fair value, especially compared to the S&P 500’s current price-to-earnings ratio of 22.0.
General Mills has grown more popular among the investors tracked by Insider Monkey, with 30 of them long the stock on September 30, up from 27 a quarter earlier. The value of their aggregate holdings also swelled by over 20% during the quarter, though they were still underweight the stock. Ken Fisher was not the largest shareholder of this stock in Insider Monkey’s database, although he did hold a small position in it. That honor went to Mario Gabelli’s mutual fund GAMCO Investors, owning 2.48 million shares.
Take Action Today
All 3 of the stocks in this article are either fairly valued or undervalued. All 3 perform exceptionally well during recessions. All 3 have long histories of dividend growth.
Investors looking to improve the performance of their portfolio during recessions should consider Wal-Mart, Johnson & Johnson, and General Mills.
Whether or not you buy these stocks today (or in the near future), it is critical that you take action by preparing yourself for the next bear market.
When the stock market declines by 20%, 30%, or more will you be ready?
You need to be.
Some investors will panic. Others know their portfolios are invested in high quality dividend growth stocks with a long history of paying steady or rising dividends through recessions.
These well-prepared investors will reinvest their dividends at very favorable prices during the next bear market. If they are still saving money, they will add to their portfolios rather than sell in fear.
Be mentally prepared for the next recession to realize stock market success when others are panicking.
Disclosure: None
