Johnson & Johnson (JNJ) is involved in the development, manufacture and sales of various products in the healthcare field. They sell many products in the consumer market such as Tylenol, Neosporin, Neutragena, Splenda and Pepcid AC. They also operate a pharmaceutical segment and a medical devices segment. They are one of the most well known dividend growth companies with 51 years of consecutive dividend increases paid to shareholders.
Johnson & Johnson is one of my top 35 dividend growth stocks, so I was interested to see how an investor would have fared owning shares of Johnson & Johnson over the past 10 and 20 years.
A 10 Year Investment in Johnson & Johnson
Let’s take a look and see how you would have fared if you invested $5,000 in Johnson & Johnson stock exactly 10 years ago. On September 26th, 2003 you would have been able to purchase roughly 101 shares of Johnson & Johnson for $4,967.18 at a closing price of $49.18. The most recent closing price of JNJ was September 27th, 2013 when JNJ closed at $86.73. Today your 101 shares would be worth roughly $8,759.73 for a return of 76.35% or a compound annual growth rate of 5.84%.
Market returns have been pretty average for Johnson & Johnson investors over the last decade, but lets not forget about the dividends you would have received during those 10 years as well. Over the course of the past 10 years you would have received a total of $1,828.10 in dividend income. This means that your total return over the past decade of owning Johnson & Johnson stock has been 113% or 7.86% compounded annually. While not spectacular results, an investor in Johnson & Johnson has owned one of the most stable blue chip companies that has an over 5 decade long history of paying increasing dividends to shareholders. While the results certainly aren’t magnificent, consistent 7-8% returns on investment will make investors wealthy over a long time frame.
So over the past 10 years while owning shares of one of the world’s largest healthcare companies you have enjoyed a 7.86% compounded annual return. You have been paid in cash dividends $1,828.10. You could have used that dividend income to pay some bills, travel, attend sporting events, donate to charity or anything else you’d like. Or you could have reinvested those dividend payments and your total return would have been even better.
A 20 Year Investment in Johnson & Johnson
A 10 year investment in Johnson & Johnson has investors 113% wealthier. How about a 20 years investment? Lets take a look at how you would have fared had you invested roughly $5,000 in Johnson & Johnson stock 20 years ago. On September 27th, 1993, JNJ stock closed with a price of $39.63. You would have been able to buy 126 shares for a total price of $4,993.38. Since that date there were two 2 for 1 stock splits. Today you would have a total of 504 shares worth a total value of $43,711.92. This would give you a return of 775% or 11.46% compounded annually.
Once again don’t forget about all the dividend income you would have received over the past 20 years just for being an owner of Johnson & Johnson shares. Over the past 20 years you would have received a total of $11,788.56 in dividend income from Johnson & Johnson. This means that your total return over the past 2 decades of owning JNJ stock has been 1,011% or 12.8% compounded annually.
So a 20 year investment in Johnson & Johnson earned you a total return of 12.8% compounded annually which is pretty great over such a long stretch. You would have grown your initial investment tenfold. You would have received $11,788.56 in dividend income to either offset your expenses or reinvest in the company. Had you reinvested in more Johnson & Johnson stock your returns would have been even better.
A 10 or 20 year investment in the Johnson & Johnson would have turned out really good for investors. Investors would have done very well with an investment in Johnson & Johnson over the past two decades. Currently, Johnson & Johnson pays a very decent dividend yield of 3.00% and trades at a P/E of just under 20. My opinion is this is a great company for dividend growth investors but it may be wise to be patient for a better entry point. The market seems to be valuing Johnson & Johnson a little higher than I would be willing to pay for the company at the current time.
I want to point out that I am not taking into account the company’s valuation 10 or 20 years ago. I am merely looking at how you would have fared if you had purchased the stock exactly 10 or 20 years ago. If the company was overvalued at the time of your purchase, your returns will generally be lower. If the company was undervalued at the the time of your purchase, returns generally will do well. Stock valuation at the time of purchase is one of the most important things to take into consideration. Even a great investment will not turn out great if you pay too much for it.
What do you think? Do you own Johnson & Johnson stock? Would you have been happy with these returns over the past couple decades? Where do you see this company going in the future?
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