“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Johnson & Johnson (NYSE: JNJ)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.
| Start date: | 12/26/2000 |
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| End date: | 12/22/2020 | ||||
| Start price/share: | $51.19 | ||||
| End price/share: | $152.72 | ||||
| Starting shares: | 195.35 | ||||
| Ending shares: | 328.86 | ||||
| Dividends reinvested/share: | $44.39 | ||||
| Total return: | 402.23% | ||||
| Average annual return: | 8.40% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $50,197.45 | ||||
The above analysis shows the two-decade investment result worked out well, with an annualized rate of return of 8.40%. This would have turned a $10K investment made 20 years ago into $50,197.45 today (as of 12/22/2020). On a total return basis, that’s a result of 402.23% (something to think about: how might JNJ shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Johnson & Johnson paid investors a total of $44.39/share in dividends over the 20 holding period, marking a second component of the total return beyond share price change alone. Much like watering a tree, reinvesting dividends can help an investment to grow over time — for the above calculations we assume dividend reinvestment (and for this exercise the closing price on ex-date is used for the reinvestment of a given dividend).
Based upon the most recent annualized dividend rate of 4.04/share, we calculate that JNJ has a current yield of approximately 2.65%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.04 against the original $51.19/share purchase price. This works out to a yield on cost of 5.18%.
More investment wisdom to ponder:
“One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.” — William Feather
