Johnson & Johnson (JNJ) is the model of consistency, with earnings and dividends marching upward year after year for decades. The company is predictable, in a very good way.

With this in mind, I want you to imagine you’re a prospective investor at the beginning of 2007. Johnson & Johnson was about to post ~$3.75 in earnings-per-share and was paying a $0.375 quarterly dividend. Shares traded hands around ~$66, equating to a starting P/E ratio of ~17.6 and a dividend yield of ~2.3%.

Now, whether or not those numbers looked attractive would have depended on your view of the business. For illustration, let’s suppose that you anticipated earnings-per-share growing by ~6% annually and the dividend growing by ~9% per year for the next five years. Based on shares trading in the 16 to 30 times earnings range during the previous decade, you presume a multiple of ~18 times earnings would be reasonable, especially given the quality of the business.

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