The Johnson & Johnson DRIP Continues To Effortlessly Beat The Market

| About: Johnson & (JNJ)

Summary

The Johnson & Johnson Dividend Reinvestment Plan continues to be a shining example of the power of dollar-cost averaging positions into high quality companies over time.

Stock price performance charts woefully understate the performance of Dividend Aristocrats versus the market.

Liquidating a position in a "seemingly" underperforming stock could be a catastrophic error without properly analyzing your position.

Click to enlarge

In a recent article I wrote titled My First Anniversary - The Johnson & Johnson Dividend Reinvestment Plan, I received a comment from Seeking Alpha user Air Force Falcon that resonated deeply with me.

Struggling,

I was planning to sell my JNJ and move to something with a higher dividend. But I read your article and did some calculations. From 1 Apr 2009 (my last outside purchase) to today, my JNJ (in a DRP, no additions) has returned a CAGR of 14.56%. WHOA! Caught me by surprise, never expected this.

Flip-Flop ... time to reevaluate ... I think I need to add to this account. Thanks for taking the time and sharing.

I don't care what type of trader you are, 14.56% CAGR is an outstanding return for any investment. To put things in perspective, the typical 30-year historical return of the S&P 500 (NYSEARCA:SPY) is about 8%. A $10,000 investment compounded for 30 years at 8% would yield $100,626.57. That same $10,000 investment compounded at 14.56% for 30 years would yield $590,187.69, a nearly 587% increase.

Yet, when we look at the return of Johnson & Johnson (NYSE:JNJ) vs the S&P 500 from April 1, 2009 to March 24, 2016, it appears that Johnson & Johnson underperformed the index, compounding at 10.77% versus the index's CAGR of 14.09%.

Click to enlarge

4/1/2009 3/24/2016 CAGR
JNJ Close $ 53.04 $ 108.31 10.77%
S&P 500 Close 811.08 2,035.94 14.09%
Click to enlarge

The secret is, of course, dividend growth!

The Johnson & Johnson DRIP In Action

As I have mentioned before, I love the Johnson & Johnson Dividend Re-investment Plan. With the only fee facing the buyer being the $1/month automatic ongoing investment fee, the plan will operate silently, tucking your money away into the mutual-fund-like umbrella healthcare-and-pharmaceutical-mega-conglomerate without you even noticing. It takes all the thinking out of investing, and let's face it, it's the emotional overthinking that often gets us in trouble. As pointed out in my previously linked article, my J&J DRIP compounded at a fat 7.7% on its anniversary while the S&P 500 returned -2.8% in the same period. But how does it work? Let's take a look at how an investor would have performed investing $100/month in the Johnson & Johnson DRIP from April 1, 2009, to March 24, 2016.

The Johnson & Johnson DRIP automatically purchases the pre-allotted amount set by the user on the first business day of each month. The plan will automatically buy in at some point during the day, giving a price somewhere between the opening and closing values. For simplicity, we will assume the plan bought in each day at closing value. This is what the investor's buy-in chart would look like, with the red dots highlighting the purchase days.

Click to enlarge

In addition to the automatic buy-in points, the investor would have had their dividends automatically reinvested, fee-free, along the following schedule.

Ex-Dividend Date Cash Amount Payment Date
2/19/2016 $ 0.75 3/8/2016
11/20/2015 $ 0.75 12/8/2015
8/21/2015 $ 0.75 9/8/2015
5/21/2015 $ 0.75 6/9/2015
2/20/2015 $ 0.70 3/10/2015
11/21/2014 $ 0.70 12/9/2014
8/22/2014 $ 0.70 9/9/2014
5/22/2014 $ 0.70 6/10/2014
2/21/2014 $ 0.66 3/11/2014
11/22/2013 $ 0.66 12/10/2013
8/23/2013 $ 0.66 9/10/2013
5/23/2013 $ 0.66 6/11/2013
2/22/2013 $ 0.61 3/12/2013
11/23/2012 $ 0.61 12/11/2012
8/24/2012 $ 0.61 9/11/2012
5/24/2012 $ 0.61 6/12/2012
2/24/2012 $ 0.57 3/13/2012
11/25/2011 $ 0.57 12/13/2011
8/26/2011 $ 0.57 9/13/2011
5/26/2011 $ 0.57 6/14/2011
2/25/2011 $ 0.54 3/15/2011
11/26/2010 $ 0.54 12/14/2010
8/27/2010 $ 0.54 9/14/2010
5/27/2010 $ 0.54 6/15/2010
2/19/2010 $ 0.49 3/9/2010
11/20/2009 $ 0.49 12/8/2009
8/21/2009 $ 0.49 9/8/2009
5/21/2009 $ 0.49 6/9/2009
Click to enlarge

Using a little bit of Excel magic, we can calculate the CAGR of each individual $100 buy-in, as well as the amount of dividends collected per each $100 buy-in, using the following formula:

Date Close Buy-In Shares Purchased Dividends Collected 3/24/16 Close End Date Value At End w/Dividends Period CAGR
3/1/2016 $ 107.22 $ 99.00 0.923335199 $ - $ 108.31 3/24/2016 $ 108.31 0.062971 17.42%
2/1/2016 $ 104.37 $ 99.00 0.948548433 $ 0.71 $ 108.31 3/24/2016 $ 109.02 0.142368 35.83%
1/4/2016 $ 100.48 $ 99.00 0.985270701 $ 0.74 $ 108.31 3/24/2016 $ 109.05 0.219028 45.30%
12/1/2015 $ 102.36 $ 99.00 0.967174678 $ 0.73 $ 108.31 3/24/2016 $ 109.04 0.312115 22.44%
11/2/2015 $ 102.17 $ 99.00 0.96897328 $ 1.45 $ 108.31 3/24/2016 $ 109.76 0.391513 20.09%
10/1/2015 $ 93.17 $ 99.00 1.06257379 $ 1.59 $ 108.31 3/24/2016 $ 109.90 0.479124 41.16%
9/1/2015 $ 92.09 $ 99.00 1.075035292 $ 1.61 $ 108.31 3/24/2016 $ 109.92 0.561259 37.08%
8/3/2015 $ 100.02 $ 99.00 0.98980204 $ 2.23 $ 108.31 3/24/2016 $ 110.54 0.640657 16.89%
7/1/2015 $ 98.47 $ 99.00 1.00538235 $ 2.26 $ 108.31 3/24/2016 $ 110.57 0.731006 17.18%
6/1/2015 $ 100.04 $ 99.00 0.989604158 $ 2.23 $ 108.31 3/24/2016 $ 110.54 0.813142 13.06%
5/1/2015 $ 100.13 $ 99.00 0.988714671 $ 2.97 $ 108.31 3/24/2016 $ 111.28 0.898015 12.47%
4/1/2015 $ 99.15 $ 99.00 0.998487141 $ 3.00 $ 108.31 3/24/2016 $ 111.31 0.980151 12.52%
3/2/2015 $ 103.22 $ 99.00 0.95911645 $ 2.88 $ 108.31 3/24/2016 $ 111.19 1.062286 7.25%
2/2/2015 $ 100.83 $ 99.00 0.98185064 $ 3.63 $ 108.31 3/24/2016 $ 111.94 1.138946 9.61%
1/2/2015 $ 104.52 $ 99.00 0.947187141 $ 3.50 $ 108.31 3/24/2016 $ 111.81 1.223819 5.67%
12/1/2014 $ 108.03 $ 99.00 0.916412108 $ 3.39 $ 108.31 3/24/2016 $ 111.70 1.311431 2.58%
11/3/2014 $ 107.46 $ 99.00 0.921273032 $ 4.05 $ 108.31 3/24/2016 $ 112.36 1.38809 3.27%
10/1/2014 $ 104.30 $ 99.00 0.949185043 $ 4.18 $ 108.31 3/24/2016 $ 112.49 1.478439 5.24%
9/2/2014 $ 103.36 $ 99.00 0.957817337 $ 4.21 $ 108.31 3/24/2016 $ 112.52 1.557837 5.60%
8/1/2014 $ 99.90 $ 99.00 0.990990991 $ 5.05 $ 108.31 3/24/2016 $ 113.36 1.645448 7.99%
7/1/2014 $ 105.87 $ 99.00 0.935109096 $ 4.77 $ 108.31 3/24/2016 $ 113.08 1.730322 3.88%
6/2/2014 $ 102.17 $ 99.00 0.96897328 $ 4.94 $ 108.31 3/24/2016 $ 113.25 1.809719 5.86%
5/1/2014 $ 100.53 $ 99.00 0.984780662 $ 5.71 $ 108.31 3/24/2016 $ 114.02 1.897331 6.86%
4/1/2014 $ 97.94 $ 99.00 1.010822953 $ 5.86 $ 108.31 3/24/2016 $ 114.17 1.979466 8.06%
3/3/2014 $ 91.56 $ 99.00 1.081258191 $ 6.27 $ 108.31 3/24/2016 $ 114.58 2.058864 11.51%
2/3/2014 $ 86.78 $ 99.00 1.140815856 $ 7.37 $ 108.31 3/24/2016 $ 115.68 2.135524 14.41%
1/2/2014 $ 91.03 $ 99.00 1.087553554 $ 7.03 $ 108.31 3/24/2016 $ 115.34 2.223135 11.23%
12/2/2013 $ 94.28 $ 99.00 1.05006364 $ 6.78 $ 108.31 3/24/2016 $ 115.09 2.308008 9.03%
11/1/2013 $ 93.37 $ 99.00 1.06029774 $ 7.55 $ 108.31 3/24/2016 $ 115.86 2.392882 9.44%
10/1/2013 $ 87.47 $ 99.00 1.131816623 $ 8.06 $ 108.31 3/24/2016 $ 116.37 2.477755 12.21%
9/3/2013 $ 86.42 $ 99.00 1.145568156 $ 8.16 $ 108.31 3/24/2016 $ 116.47 2.554415 12.39%
8/1/2013 $ 93.77 $ 99.00 1.055774768 $ 8.21 $ 108.31 3/24/2016 $ 116.52 2.644764 8.56%
7/1/2013 $ 86.63 $ 99.00 1.142791181 $ 8.89 $ 108.31 3/24/2016 $ 117.20 2.729637 11.71%
6/3/2013 $ 84.71 $ 99.00 1.168693189 $ 9.09 $ 108.31 3/24/2016 $ 117.40 2.806297 12.33%
5/1/2013 $ 84.23 $ 99.00 1.1753532 $ 9.92 $ 108.31 3/24/2016 $ 118.23 2.896646 12.42%
4/1/2013 $ 81.93 $ 99.00 1.20834859 $ 10.20 $ 108.31 3/24/2016 $ 118.51 2.978782 13.19%
3/1/2013 $ 76.70 $ 99.00 1.290743155 $ 10.89 $ 108.31 3/24/2016 $ 119.20 3.063655 15.48%
2/1/2013 $ 74.18 $ 99.00 1.334591534 $ 12.08 $ 108.31 3/24/2016 $ 120.39 3.140315 16.67%
1/2/2013 $ 70.84 $ 99.00 1.397515528 $ 12.65 $ 108.31 3/24/2016 $ 120.96 3.22245 18.06%
12/3/2012 $ 69.65 $ 99.00 1.421392678 $ 12.86 $ 108.31 3/24/2016 $ 121.17 3.304586 18.24%
11/1/2012 $ 71.50 $ 99.00 1.384615385 $ 13.38 $ 108.31 3/24/2016 $ 121.69 3.392197 16.97%
10/1/2012 $ 69.13 $ 99.00 1.432084479 $ 13.83 $ 108.31 3/24/2016 $ 122.14 3.47707 17.79%
9/4/2012 $ 67.26 $ 99.00 1.471900089 $ 14.22 $ 108.31 3/24/2016 $ 122.53 3.550992 18.40%
8/1/2012 $ 69.38 $ 99.00 1.426924186 $ 14.65 $ 108.31 3/24/2016 $ 122.96 3.644079 17.01%
7/2/2012 $ 68.00 $ 99.00 1.455882353 $ 14.95 $ 108.31 3/24/2016 $ 123.26 3.726215 17.31%
6/1/2012 $ 61.78 $ 99.00 1.602460343 $ 16.46 $ 108.31 3/24/2016 $ 124.77 3.811088 20.25%
5/1/2012 $ 65.22 $ 99.00 1.517939282 $ 16.52 $ 108.31 3/24/2016 $ 124.83 3.895962 18.13%
4/2/2012 $ 66.21 $ 99.00 1.495242411 $ 16.27 $ 108.31 3/24/2016 $ 124.58 3.975359 17.23%
3/1/2012 $ 64.83 $ 99.00 1.527070801 $ 16.61 $ 108.31 3/24/2016 $ 124.92 4.062971 17.52%
2/1/2012 $ 65.69 $ 99.00 1.507078703 $ 17.26 $ 108.31 3/24/2016 $ 125.57 4.142368 16.93%
1/3/2012 $ 65.88 $ 99.00 1.50273224 $ 17.21 $ 108.31 3/24/2016 $ 125.52 4.221766 16.50%
12/1/2011 $ 64.45 $ 99.00 1.536074476 $ 17.59 $ 108.31 3/24/2016 $ 125.90 4.312115 16.80%
11/1/2011 $ 63.38 $ 99.00 1.562006942 $ 18.78 $ 108.31 3/24/2016 $ 127.09 4.394251 17.15%
10/3/2011 $ 62.08 $ 99.00 1.594716495 $ 19.17 $ 108.31 3/24/2016 $ 127.48 4.473648 17.45%
9/1/2011 $ 65.33 $ 99.00 1.515383438 $ 18.21 $ 108.31 3/24/2016 $ 126.52 4.561259 15.59%
8/1/2011 $ 64.41 $ 99.00 1.537028412 $ 19.35 $ 108.31 3/24/2016 $ 127.66 4.646133 15.86%
7/1/2011 $ 67.30 $ 99.00 1.47102526 $ 18.52 $ 108.31 3/24/2016 $ 126.83 4.731006 14.33%
6/1/2011 $ 66.48 $ 99.00 1.489169675 $ 18.75 $ 108.31 3/24/2016 $ 127.06 4.813142 14.41%
5/2/2011 $ 66.21 $ 99.00 1.495242411 $ 19.68 $ 108.31 3/24/2016 $ 127.99 4.895277 14.41%
4/1/2011 $ 59.49 $ 99.00 1.664145234 $ 21.90 $ 108.31 3/24/2016 $ 130.21 4.980151 17.03%
3/1/2011 $ 60.70 $ 99.00 1.630971993 $ 21.46 $ 108.31 3/24/2016 $ 129.77 5.065024 16.19%
2/1/2011 $ 60.63 $ 99.00 1.632855022 $ 22.37 $ 108.31 3/24/2016 $ 130.68 5.141684 16.11%
1/3/2011 $ 62.82 $ 99.00 1.575931232 $ 21.59 $ 108.31 3/24/2016 $ 129.90 5.221081 14.93%
12/1/2010 $ 62.42 $ 99.00 1.586030119 $ 21.73 $ 108.31 3/24/2016 $ 130.04 5.311431 14.82%
11/1/2010 $ 63.69 $ 99.00 1.554404145 $ 22.13 $ 108.31 3/24/2016 $ 130.44 5.393566 14.22%
10/1/2010 $ 61.75 $ 99.00 1.603238866 $ 22.83 $ 108.31 3/24/2016 $ 131.14 5.478439 14.74%
9/1/2010 $ 58.29 $ 99.00 1.698404529 $ 24.19 $ 108.31 3/24/2016 $ 132.50 5.560575 15.91%
8/2/2010 $ 58.72 $ 99.00 1.685967302 $ 24.92 $ 108.31 3/24/2016 $ 133.23 5.64271 15.63%
7/1/2010 $ 59.07 $ 99.00 1.675977654 $ 24.77 $ 108.31 3/24/2016 $ 133.08 5.730322 15.23%
6/1/2010 $ 58.76 $ 99.00 1.684819605 $ 24.90 $ 108.31 3/24/2016 $ 133.21 5.812457 15.12%
5/3/2010 $ 65.33 $ 99.00 1.515383438 $ 23.22 $ 108.31 3/24/2016 $ 131.53 5.891855 12.61%
4/1/2010 $ 65.77 $ 99.00 1.505245553 $ 23.06 $ 108.31 3/24/2016 $ 131.37 5.979466 12.27%
3/1/2010 $ 63.39 $ 99.00 1.56176053 $ 23.93 $ 108.31 3/24/2016 $ 132.24 6.064339 12.89%
2/1/2010 $ 63.09 $ 99.00 1.569186876 $ 24.81 $ 108.31 3/24/2016 $ 133.12 6.140999 12.93%
1/4/2010 $ 64.68 $ 99.00 1.530612245 $ 24.20 $ 108.31 3/24/2016 $ 132.51 6.217659 12.23%
12/1/2009 $ 63.51 $ 99.00 1.558809636 $ 24.64 $ 108.31 3/24/2016 $ 132.95 6.310746 12.42%
11/2/2009 $ 59.49 $ 99.00 1.664145234 $ 27.13 $ 108.31 3/24/2016 $ 135.44 6.390144 13.74%
10/1/2009 $ 59.81 $ 99.00 1.655241598 $ 26.98 $ 108.31 3/24/2016 $ 135.29 6.477755 13.43%
9/1/2009 $ 59.94 $ 99.00 1.651651652 $ 26.92 $ 108.31 3/24/2016 $ 135.23 6.55989 13.21%
8/3/2009 $ 61.10 $ 99.00 1.620294599 $ 27.20 $ 108.31 3/24/2016 $ 135.51 6.639288 12.75%
7/1/2009 $ 57.07 $ 99.00 1.734711757 $ 29.13 $ 108.31 3/24/2016 $ 137.44 6.729637 13.95%
6/1/2009 $ 55.78 $ 99.00 1.774829688 $ 29.80 $ 108.31 3/24/2016 $ 138.11 6.811773 14.24%
5/1/2009 $ 52.59 $ 99.00 1.882487165 $ 32.53 $ 108.31 3/24/2016 $ 140.84 6.896646 15.35%
4/1/2009 $ 53.04 $ 99.00 1.866515837 $ 32.25 $ 108.31 3/24/2016 $ 140.56 6.978782 14.99%
Click to enlarge

What we find is that from 4/1/2009 to 3/24/2016, the plan actually compounded at 14.99%, beating the S&P 500's CAGR by nearly an entire percentage point. If user Air Force Falcon would have continued contributing monthly, each individual contribution would have compounded at an average CAGR of 14.85%, again beating the S&P 500.

Conclusion

We have often heard the phrase, "Time in the market is more important than timing the market." Simply falling asleep behind the wheel in the JNJ DRIP, we all would have outperformed the S&P 500 during one of the greatest bull markets of all-time without lifting a finger. Even more impressive is throughout this 7-year period, we would have been charged an astoundingly low $84 in fees for this kind of growth.

When dealing with long-term investments, it is of crucial importance that we calculate our true CAGR to see how our investment has been performing over time. By only looking at a stock price performance chart, it would have appeared that Johnson & Johnson was underperforming the market when it was in fact beating the market. Selling this investment would not only have liquidated a market-beating asset, but it would have triggered tremendous capital gains taxes and sales commissions, severely impairing the amount of remaining capital that could have been reinvested elsewhere. This rash decisions are ways investors often hurt themselves. The Johnson & Johnson Dividend Reinvestment Plan will continue to be a cornerstone in my retirement plan, likely through thick-and-thin, 'til death do us part. As long as the underlying earnings engine of this top-notch Dividend Aristocrat remains sound, so will my plan.

Disclosure: I am/we are long JNJ, SPY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: All information found herein, including any ideas, opinions, views, predictions, commentaries, forecasts, suggestions or stock picks, expressed or implied, are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. I am not a licensed investment adviser.