“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a two-decade holding period for an investor who was considering Johnson & Johnson (NYSE: JNJ) back in 2002, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 02/19/2002 |
|
|||
| End date: | 02/16/2022 | ||||
| Start price/share: | $56.92 | ||||
| End price/share: | $167.21 | ||||
| Starting shares: | 175.69 | ||||
| Ending shares: | 298.29 | ||||
| Dividends reinvested/share: | $47.70 | ||||
| Total return: | 398.78% | ||||
| Average annual return: | 8.36% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $49,839.19 | ||||
As shown above, the two-decade investment result worked out well, with an annualized rate of return of 8.36%. This would have turned a $10K investment made 20 years ago into $49,839.19 today (as of 02/16/2022). On a total return basis, that’s a result of 398.78% (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 $47.70/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 4.24/share, we calculate that JNJ has a current yield of approximately 2.54%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.24 against the original $56.92/share purchase price. This works out to a yield on cost of 4.46%.
Another great investment quote to think about:
“The older I get, the more I see a straight path where I want to go. If you’re going to hunt elephants, don’t get off the trail for a rabbit.” — T. Boone Pickens
