“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Johnson & Johnson (NYSE: JNJ) back in 2004: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 09/20/2004 |
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| End date: | 09/18/2024 | ||||
| Start price/share: | $57.92 | ||||
| End price/share: | $166.15 | ||||
| Starting shares: | 172.65 | ||||
| Ending shares: | 303.92 | ||||
| Dividends reinvested/share: | $58.17 | ||||
| Total return: | 404.97% | ||||
| Average annual return: | 8.43% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $50,498.45 | ||||
As we can see, the twenty year investment result worked out well, with an annualized rate of return of 8.43%. This would have turned a $10K investment made 20 years ago into $50,498.45 today (as of 09/18/2024). On a total return basis, that’s a result of 404.97% (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 $58.17/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 4.96/share, we calculate that JNJ has a current yield of approximately 2.99%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.96 against the original $57.92/share purchase price. This works out to a yield on cost of 5.16%.
Another great investment quote to think about:
“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” — George Soros
