The time is now, to be as aggressive as ever, investing in dividend stocks to grow your passive income. Our goal is to reach financial freedom by building a growing dividend income stream. We aren’t going to reach this coveted end game by leaving our cash on the sidelines. Like Lanny, I am finally committing to a consistent, weekly purchase strategy. There is one twist, however. My wife and I are going to buy Johnson & Johnson every week! This article will explain why.
The Benefits of Investing Consistently
We all know the famous saying. Its about time in the market, not timing the market. That saying holds a lot of weight, given the current state of the stock market. When was the last time the stock market had several consecutive down days? It was about this time last year, when the market collapsed as the COVID-19 pandemic sent shockwaves through the world.
Since the bottom in 2020, the stock market has only gone in one direction…up. You want to know what is crazy though? Let’s take a step back and look at the trend of the S&P 500 over the 5 years. That’s right, the stock market has soared. Even after the market drop in 2020.
Want to take a step even further back? Let’s increase the length of time the chart shows. Look at the S&P 500 since the 1980s. Again, you guessed it, the trend is upwards.
This just reinforces the importance of investing as much capital, as possible, over time. Invest with conviction and do it consistently. 10 years from now, you won’t remember the price you paid for an investment today. Instead, you will be smiling and thanking your past self to taking these important steps and buying income producing assets.
Want an example of executing a successful, consistent investing strategy? Look no further than the other Diplomat, Lanny. Since mid-2020, Lanny and his wife have been purchase 3 shares weekly of Vanguard’s High-Dividend Yield ETF (VYM). Now, their position has grown to over $10,000 each! That’s insane.
Read: Why Lanny and His Wife are Buying VYM Weekly
See: Our Entire Dividend Stock Portfolios – including Lanny’s VYM Position
The growth is due to adding 3 shares (between $250-$300 per week) and price appreciation. When they began this strategy, VYM was trading around $80/share. Today, the ETF is trading at over $100/share. Insanity.
I’m very jealous, to be honest. He is enjoy the best of both worlds. His cost basis is much lower than the current price, since he has been adding weekly and slowly building his position. Further, he has added some SERIOUS dividend income as a result of this strategy.
Hopefully this example shows why consistency is so important. Now, it is my turn. I’m ready to start investing in a consistent investment on a weekly basis and build my position slowly over time. There is one twist, however. I’m not going to purchase shares of VYM. Rather, I am going to purchase shares of one of our favorite dividend stocks. One of the kings in the dividend growth investing community.
My Choice: JOhnson & Johnson (JNJ)
The big reveal. After performing research and reviewing my dividend stock portfolio, I decided to look no further than one of our Top 5 Foundation Dividend Stocks. My wife and I will be investing weekly in Johnson & Johnson (JNJ).
Related: Our Top 5 Foundation Dividend Stocks
It isn’t just about the stock metrics (which I will discuss later). This is a company that is one of the greatest dividend growth stocks. Johnson & Johnson has one of the strongest brand portfolios. The list includes: Neutrogena, Aveeno, Rogaine, Tylenol, Motrin, Zyrtec, Benadryl, Sudafed, Listerine, Band-Aid, and others.
In addition to the long list of popular brands, we can officially add a COVID-19 vaccine to the list. We all know the story by now. Johnson & Johnson’s single-shot vaccine was approved for use, helping even more people get vaccinated.
Truth be told, it is shockingly underrepresented in my dividend stock portfolio. I own 18.7 shares while my wife owns 22.7 shares. That’s just over 1% of our overall portfolio. In the grand scehme of things, that’s really not that large of a position!
Johnson & Johnson’s Valuation is Right
We are always on the lookout for undervalued dividend growth stocks. Our Dividend Stock Screener uses 3 simple metrics to help us find stocks to by. The three metrics are:
1.) P/E Ratio less than the S&P 500 (Valuation)
2.) Dividend Payout Ratio less than 60% (Dividend Safety)
3.) Dividend Growth & History of Increasing Dividends
Johnson & Johnson is unique in the sense that their valuation always seems to be trading at a discount to the market. In my mind, the company’s P/E ratio is consistenyl between 16x – 20X. JNJ is never the most expensive or the cheapest stock in the market.
Read: The Importance of Updating your Price to Earnings Ratio
Of course, that’s just my hunch. Let’s put the company’s actual metrics through our stock screener. At the time of this article, Johnson & Johnson is trading at $160.77 per share (3/17/21). The company’s forward average earnings estimate is $9.51 per share and their annual dividend is $4.04 per share. Let’s see how the company stacks up through our screener.
1.) P/E Ratio: 16.91X. PASS
2.) Payout Ratio: 42.4%. PASS
3.) Consecutive Dividend Increases: 58 Years. Pass
5 Year Average Dividend Growth Rate: 5.22%. Pass
That’s right, this Dividend King (50+ consecutive dividend increases) performs very well in our stocks screener. At this price, Johnson & Johnson is a buy today, tomorrow, next week, and most likely, every month this year. That is why I am going to start purchasing 1 share of Johnson & Johnson every week.
The Purchase Plan
The plan is set. We are ready to execute. With that being said, we are going to start off slowly. Each week, we are going to purchase 1 share of Johnson & Johnson (JNJ) in both my portfolio and my wife’s portfolio.
This will result in adding over $300 per week to our portfolio, along with $8.08 to our forward dividend income. With 41 weeks remaining in 2021, we will end up amassing large positions in the Dividend King.
The dividend income added by 12/31/2021 will be insane. 82 shares combined will produce $331.28 in dividend income! That, of course, is without the company’s upcoming dividend raise in April and dividend reinvestment!
Summary
Overall, we couldn’t be happier to announce this strategy. I’m excited to consistently add to a position, regardless of the swings in the market. Johnson & Johnson is one of my favorite companies for a reason. We aren’t just buying a stock for the sake of buying a stock. We are buying a stake in a legendary dividend growth stock that will continue to pay, and grow, its dividend for decades. That is what it is all about! Let’s keep pushing and putting our hard earned capital to work. Time to buy income and reach financial freedom.
What do you think of our strategy? Do you purchase one stock or investment weekly? Is Johnson & Johnson one of your favorite dividend growth stocks as well?
-Bert
To feel even better about your strategy here is another fact few investors are aware of; JNJ has the longest consecutive dividend growth for raising their dividend greater than the rate of inflation. In their entire consecutive dividend growth streak the only year a raise failed to beat inflation was 1980, absolutely amazing! Currently a 40 year streak and this year will most likely make it 41 years.
Damn. That’s a cool fact right there SD Growth. It is one think to raise a dividend, just to raise a dividend. It is another thing for the company to make sure that the dividend increase isn’t going to result in losing purchasing power.
Fantastic addition.
Bert
I have similar position in JNJ and Just last Month added 1 JNJ. nice idea,I have been averaging down on some of my expensive stocks.
Desi,
If one of your companies is undervalued, not a bad time to lower your cost basis at all.
Just got to say you guys are so lucky with no/low commission costs. When I started out the commission was $59.95 per trade. I know a when I went to school story….but to make it worth it you need at least $3-$5K a trade. I would say since you all ready buy VYM weekly – just put your JNJ dough into that trade. JNJ is a top holding of VYM and VYM has better performance then JNJ. Also eventually all stocks go bankrupt….
Thanks Dave. Its insane how much of a game changer low fee trading has been. My old brokerage was at Edward Jones and it cost $59 as well to make a trade. Now…ITS FREE! That’s a fair point, although I disagree that all stocks will eventually go bankrupt.
Bert
Yup JNJ is one of my largest holdings, managed to snach some for 144$ not so long ago 🙂
Nice job grabbing it there. Hopefull I will be able to get some at that point too!
Bert,
Oddly enough, JNJ is also underrepresented in my portfolio at about 1.2% weighting. It’s great that JNJ is one of those stocks that often trades around fair value as that makes it more viable to execute your plan the remainder of this year.
Are you going to be adding as well Kody??
Good points, I am someone who is generally conservative about valuation, and JNJ has typically been just over the range where I wanted to buy it, but I am rethinking this in the current market, where it may be more prudent to just buy quality that is close to fair value.
This post is giving me some things to think about regarding JNJ and other high quality DGI stocks, as I am running out of undervalued options.
STD – No kidding, there really are not too many undervalued dividend stocks out there. JNJ isn’t the cheapest. It never will be. But in the long run, the valuation is consistent and the company has a strong history of increasing its dividend.
Bert
Yep, I actually plan on adding a share of JNJ first thing in April, along with paying my Robinhood margin off completely to begin the transition to Fidelity later in the month.
There you go Kody. Love it! Welcome to the Fidelity club.
JNJ is almost always a solid choice and I like your strategy to find a business that’s underrepresented and come up with a plan to rectify that. I liked it a lot better a few months back when the yield was closer to the 2.8-3.0% range, but 2.5% is likely still in the fair value range and I’d guess on the upper end of fair value. Great company and I’m sure there’s more to come from JNJ in the future. It’s one of the ultimate SWAN stocks.
No kidding. In hindsight, I wish I had loaded up on JNJ when it was yielding closer to 3%. It is still nuts how the company is undervalued at these levels, even if it is on the slightly higher end.
Bert
Ik kan wel met je idee instemmen maar kies er voor om na de maandelijkse betaling van onze salarissen vijf stuks van het aandeel J&J te kopen. Ik hou van vijftallen en de kosten van aankoop kan ik hiermee ook binnen de perken houden. Veel succes vanuit Nederland.