“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a ten year period?
Today, let’s look backwards in time to 2009, and take a look at what happened to investors who asked that very question about Johnson & Johnson (NYSE: JNJ), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 12/14/2009 |
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| End date: | 12/11/2019 | ||||
| Start price/share: | $64.96 | ||||
| End price/share: | $140.98 | ||||
| Starting shares: | 153.94 | ||||
| Ending shares: | 207.98 | ||||
| Dividends reinvested/share: | $28.82 | ||||
| Total return: | 193.22% | ||||
| Average annual return: | 11.36% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $29,320.02 | ||||
As shown above, the ten year investment result worked out quite well, with an annualized rate of return of 11.36%. This would have turned a $10K investment made 10 years ago into $29,320.02 today (as of 12/11/2019). On a total return basis, that’s a result of 193.22% (something to think about: how might JNJ shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 10 years, Johnson & Johnson has paid $28.82/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 3.8/share, we calculate that JNJ has a current yield of approximately 2.70%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.8 against the original $64.96/share purchase price. This works out to a yield on cost of 4.16%.
Here’s one more great investment quote before you go:
“Ensure management’s interests are aligned with shareholders.” — Sam Zell
