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Arie Goren, Portfolio123 (475 clicks)
Long only, value, research analyst, dividend investing
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[Editor's Note: The author has replaced the 3 stock charts post-publication, in response to comments. He added the following explanation - I tried to also show the return without dividends in order to emphasize the importance of the dividend yield. But since I could not get the correct historical prices adjusted for stock splits, I had to omit this information. This does not make any difference to the conclusion of this article.]

Many investors are trying to get a return that is higher than the inflation rate by stock picking, and they are making a lot of trades, paying commissions and "slippage" (the difference between bid and ask). But there is an easy and a very elegant way of getting a return much higher than inflation -- just stick to some of the dividend kings, stocks with a long history of steadily increasing dividend payment.

In this article, I will show the return of holding of three such companies for different long periods, and that the return has been much higher than the inflation rate during those periods.

All the data for this article were taken from Yahoo Finance and finviz.com on January 24.

The table and the charts below present the three dividend kings, their forward annual dividend rate, the forward yield, the payout ratio and the dividend rate of growth for the past five and 10 years.

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Johnson & Johnson (JNJ)

Johnson & Johnson, together with its subsidiaries, engages in the research and development, manufacture, and sale of various products in the health care field worldwide.

The table below presents the compound annual growth rate (OTCPK:CAGR) of holding JNJ stock for the last five years, 10 years, 20 years, 30 years and 40 years.


Data: Yahoo Finance

Holding JNJ stock during the last five years has given an average annual return of 6.4%. Holding JNJ stock during the last 10 years has given an average annual return of 6.0%, during the last 20 years has given a very nice average annual return of 12.3%, during the last 30 years an even better annual return of 13.7%, and during the last 40 years, a nice annual return of 11.0%.

The chart below presents the quarterly dividend rate for JNJ stock since 1991.

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Data: Yahoo Finance

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Chart: finviz.com

The Coca-Cola Company (KO)

The Coca-Cola Company, a beverage company, engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide.

The table below presents the compound annual growth rate (OTCPK:CAGR) of holding the KO stock for the last five years, 10 years, 20 years, 30 years and 40 years.


Data: Yahoo Finance

Holding the KO stock during the last five years has given an average annual return of 7.9%. Holding the KO stock during the last 10 years has given an average annual return of 9.2%, during the last 20 years an average annual return of 8.6%, during the last 30 years a very nice annual return of 15.3%, and during the last 40 years, a nice annual return of 11.4%.

The chart below presents the quarterly dividend rate for KO stock since 1991.

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Data: Yahoo Finance

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Chart: finviz.com

Procter & Gamble Co. (PG)

The Procter & Gamble Company, together with its subsidiaries, engages in the manufacture and sale of a range of branded consumer packaged goods.

The table below presents the compound annual growth rate (OTCPK:CAGR) of holding the PG stock for the last five years, 10 years, 20 years, 30 years and 40 years.


Data: Yahoo Finance

Holding the PG stock during the last five years has given an average annual return of 4.7%. Holding the PG stock during the last 10 years has given an average annual return of 7.8%, during the last 20 years has given a nice average annual return of 11.5%, during the last 30 years an even better annual return of 13.4%, and during the last 40 years, a nice annual return of 11.0%.

The chart below presents the quarterly dividend rate for PG stock since 1991.

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Data: Yahoo Finance

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Chart: finviz.com

Summary

The table below presents the compound annual growth rate (OTCPK:CAGR) of holding the three stocks for the last five years, 10 years, 20 years, 30 years and 40 years, and the average annual U.S. inflation rate during those periods, calculated by the CPI change.

(click to enlarge)

The table clearly shows that during all these periods, holding the three stocks has given much higher average annual return than the inflation rate.

Source: The Beauty Of Holding These 3 Dividend Kings For Long Periods