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“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

— 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 ten year holding period for an investor who was considering Johnson & Johnson (NYSE: JNJ) back in 2013, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 04/04/2013
$10,000

04/04/2013
  $24,970

04/03/2023
End date: 04/03/2023
Start price/share: $82.41
End price/share: $156.85
Starting shares: 121.34
Ending shares: 159.15
Dividends reinvested/share: $35.20
Total return: 149.63%
Average annual return: 9.58%
Starting investment: $10,000.00
Ending investment: $24,970.19

As we can see, the ten year investment result worked out well, with an annualized rate of return of 9.58%. This would have turned a $10K investment made 10 years ago into $24,970.19 today (as of 04/03/2023). On a total return basis, that’s a result of 149.63% (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.]

Notice that Johnson & Johnson paid investors a total of $35.20/share in dividends over the 10 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 4.52/share, we calculate that JNJ has a current yield of approximately 2.88%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.52 against the original $82.41/share purchase price. This works out to a yield on cost of 3.49%.

One more piece of investment wisdom to leave you with:
“Every once in a while, the market does something so stupid it takes your breath away.” — Jim Cramer