Some companies possess superior business characteristics and JNJ is one of them. In reviewing JNJ's annual reports since 2000, I discovered that the cash position has moved from roughly $4 billion to roughly$16 billion. This fantastic growth in cash is even more stunning because it has been accompanied by a strong dividend payout and a reasonable share buyback. Look at the numbers since 2000.
JNJ has doubled in sales and earnings and earned roughly $40 billion for the period. JNJ has grown cash by $12 billion. JNJ has repurchased $6 billion of stock. JNJ has paid $15 billion in dividends. The remaining $7 billion or less than 20% of earnings is all that has been needed for a growth rate greater than 10% per year. That's amazing.
Is it all good news? No, it rarely is. Strong results often create excess confidence. JNJ overbid for Guidant. Fortunately, Boston Scientific got frenzied in the bidding and "succeeded" in the purchase of Guidant. Not happy with the "missed opportunity," JNJ has now paid a very high price for the consumer products line of Pfizer.
The other looming problem is JNJ's pension plan. Not only is it underfunded, the plan assumptions also appear aggressive, meaning the plan is even more significantly underfunded. JNJ's management does not appear to have taken steps (such as IBM's freezing of their plans) to address these issues.
