Emergency Fund Edited

Do Small Investments Add Up? A Johnson & Johnson Case Study

One of the concerns that many people have when it comes to investing is the concern that they don’t have enough to build up any amount that’s worth the hassle. Why would anyone want to invest $50 or $100 a year? Is that even worth it? Do small investments add up?

The answer to this question would be, yes! It is worth it. While you’re probably not going to get wealthy by investing $100 a year, you can start to build up a nice holding if you choose a solid company. You could even do better if you pick out the next Amazon (AMZN) or Apple (AAPL).

To show some steady growth that’s around 11 percent per year when accounting for dividend reinvestment, this case study will look at how a small investment in Johnson & Johnson (JNJ) would have paid off over a 20-year period.

Methodology

This case study, as noted, will focus on a small investment in Johnson & Johnson. Our hypothetical investor, let’s call him Bob, purchased one share of JNJ stock on the first trading day of the year starting back in 1997. He then proceeded to purchase exactly one share of JNJ on the first trading day of the year in every year since.

To get the purchase price of each share, I went to the Johnson & Johnson investor relations page. I then looked for the highest price on the first trading day of the year. Therefore, Bob was pretty unlucky in the regard that he invested at the worst time of the day. I did not account for any transaction charges in this analysis. That would undoubtedly add some cost unless Bob chose to work with a direct purchase agency like Computershare, but even direct purchases would have some minimal expenses.

This means that Bob made 21 separate transactions over a 20-year period, counting 2017. Johnson & Johnson stock split back in June 2001, so he, in effect, bought two shares for the first five years.

I then looked at the dividends that JNJ paid out over the past 20 years. Counting the dividend that’s anticipated in September 2017, Bob would have received a cumulative $34.36 in dividend income on the first share of stock that he bought. This would obviously go down on each subsequent share, as the length of time that he was invested in the later shares was less.

Finally, I looked at the value of each share if Bob decided to reinvest his dividends into more shares. The DRIP value came from the calculator that’s available at Don’t Quit Your Day Job. Here are the totals that my calculations came up with.

Case Study Results: Small Investments Add Up

If Bob had bought only one share a year between January 1997 and January 2017, he would now have 26 shares because of the split in 2001. The annualized dividends per share on his original purchase would have grown from $0.425 per share to the current level of $3.36 per share.

The 26 shares that he would now hold without dividend reinvestment would throw off $87.36 in income each year without accounting for any additional dividend growth going forward. This is more income than the share price he would have paid in all but seven of the years in which he bought shares, and it would be more than his average annual investment of $74.56.

Bob’s investment of $1,565.76 in Johnson & Johnson would now be worth $3,466.40, which is a nice return in and of itself. If he had decided to roll over all of his dividends into more shares, he would now hold 36.3255 shares. This means that he would have added more than 10 shares of a great company by doing nothing more than choosing not to spend his dividend income.

Dividend Reinvestment Ramps Up Returns on Small Investments

The value of his holdings in JNJ would be up to $4,842.55. This would effectively mean that his investments would have cumulatively tripled over time. Additionally, his holdings under the DRIP scenario would now throw off $122.05 in annual income.

The total return with dividend reinvestment included shows an 11.01 percent CAGR based upon the calculations from the Don’t Quit Your Day Job calculator. This is important to realize in light of the fact that the cost of a share of JNJ went up by just above 10 percent between January 2002 and January 2012.

In spite of this nearly sideways trading range for a decade, the long-term return on JNJ is still quite good over a 20-year period.

What About A Big Initial Investment?

This case study focused upon how much a single share a year would have added up to. What if Bob had instead had $1565.76 to invest back in 1997 and reinvested dividends? He would now have an investment that would be worth $13,479.25. This would equal to 100.9833 shares of stock which would now be providing $339.30 in dividend income each year based upon the current payout of $3.36 a share.

This is without any additional investments throughout the 20-year period, which shows that buying early and then reinvesting allows for a much greater level of compounding

Conclusion

You might think that an investment in one share each year is pretty pointless. These are small investments, but hopefully, this case study shows that this is not the case. A little more than $3,400 is not a huge sum of money, but it’s more than double what Bob actually invested. It’s definitely more than he would have had had he not decided to invest at all.

Also, it’s important to note that you could multiply this by any number you want to include. You could multiply the total by 5 if you to look at 5 shares a year, or 10 if you wanted to look at 10 shares a year. The numbers show that a small investment in a boring large-cap company can build up over time (when I was growing up, JNJ was known for Band-Aids and baby powder–pretty boring stuff).

The study also shows the importance of starting early, as a bigger investment early on allowed for much higher returns, even if no additional investments were made in subsequent years. Also, it’s important to note that there are no “typical” investments. If Bob had invested all of his money in Enron, he’d have nothing to show for his efforts. Therefore, it’s important to diversify and choose companies with solid long-term growth in revenue and income.  Then, even small investments will add up over time.

Be Sure To Follow And Share

If you’d like to follow my progress each month, be sure to go to the top of the page and sign up for updates. You can also follow me on Twitter.  I’m now above 300 followers, and I’d like to get more than 400 by the end of summer. You can help!

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Emergency Fund Edited

Dividends: Passive Income From June 2017

The month of June 2017 is over. The summer is about half over. That’s not cool, but what is cool is the passive income that I get from dividends each and every month.

The end of the month is a great time to look back and assess where I am. I look at my dividends and where they stand in relation to the same month last quarter and the same month last year. This gives me a good idea if I’m making progress toward my goal of building up passive income. As I’ve noted many times, passive income is the best income.

I like dividends because they come in whether I’m at home or at work. They come in whether I’m awake or asleep, which means I can really earn money in pajamas. At home or on the road? It doesn’t matter. This passive aspect of dividend income is one that I really like.

I own some great companies, and these companies sell goods or serve clients around the world on a daily basis. I can take Christmas completely off, and I’ll still have dividends rolling in from these companies. In June, I earned from several companies and a couple of funds. Here are the dividends that I earned during the month of June.

Dividends For June 2017

Here are the specific companies and funds that paid me a dividend during the month of June 2017:

Kroger Co. (KR)                                                                                                 $2.40
Southern Company (SO)                                                                            $17.40
Johnson & Johnson (JNJ)                                                                              $8.40
Realty Income Corp. (O)                                                                                $5.28

Total Dividend Income From IRA                                                            $33.48

JP Morgan Equity Income R5 (OIERX)                                                   $1.96
Cohen and Steers Realty Shares (CSRSX)                                          $21.79

Total Dividend Income from 401k                                                          $23.75

Total Dividend Income for June 2017:                                            $57.23

This dividend income is the highest that I’ve earned thus far this calendar year, and I must say that I’m pretty happy with it. Of course, this much passive income would not go far, but it is another step in the right direction.

Year-To-Year Comparison

I like to look at my monthly dividend income and then compare it with the amount that I had a year previously. Again, this is a great way to show me if I’m on the right track.

In June 2016, the companies that I owned at the time paid me $18.82. It’s pretty evident from a comparison that I more than trebled my dividend income over the past year. I’m thrilled any time that I see such large increases on a year-over-year basis.

Passive Dividend Income Builds Up Slowly But Surely
My dividends continue to build slowly, but surely.

The companies and funds that I own have now paid me $206.64 for the year. This compares with the $61.60 that I had earned at this point last year. My passive income has increased by more than 200 percent in just a year.

Furthermore, I’m now on track to earn $454.05 over the next 12 months in my traditional IRA account. This would buy me about 22 hours and 45 minutes of freedom over the next year without taking into account the dividends I earn from my 401k funds. I track this based upon having to replace $20/hour. I’m getting up close to the two hours a month level.

I can’t believe how far this has come from the $0.64 I received from Apple back in August 2015. This was the first of the dividends that companies have paid me, and the amount has only gone up from there. How was your dividend income last month? I’ve updated my monthly dividend record to reflect my dividends from June 2017 if you want to check out my progress.

Disclaimers And The Like

If you’d like to keep up with my progress, be sure to sign up for updates in the email signup box near the top of the page or via the popup that asks you to sign up. You can also follow me on Twitter.

Disclaimer: I am not a professional financial advisor. I intend this information for informational and educational purposes only. Perform due diligence before investing in any equities. See my disclosures page for more information. I’m long KR, O, SO, JNJ, CSRSX, and OIERX.

 

Emergency Fund Edited

March 2017 Passive Dividend Income

Passive Dividend Income Builds Up Slowly But Surely

Yet another month has come and gone. I don’t like new months for one reason, as they seem to be coming more quickly as I get older. I do, however, enjoy them for another reason, because they give a great chance to look back. One of the best things to look back over is passive dividend income.

As you might already know, I’ve decided to embark upon a path of building a growing stream of passive dividend income. The strategy involves buying stock in a few high-quality companies. These companies have many employees who work hard every day.

They also tend to make lots of money, and part of the money that they make comes back to me in the form of dividends. These are cash payments that I can use for pretty much whatever I want. At this point in life, I’m using them to buy more stock. Which leads to more dividends. Which leads to more stock. And on and on this virtuous cycle should go.

Passive Dividend Income for March 2017

March was a great month for earning dividends. I had several companies and funds that paid out in the month. One was even unexpected. Kraft-Heinz switched up from paying out in the first month of the quarter to the third month. It’s no big deal, but it does make my first month income look smaller. Oh well, first world problem, for sure. Here are the great companies that paid me passive dividend income during the month of March:

Taxable Account

Unilever (UL)                                                                           $0.33
McDonald’s (MCD)                                                             $2.79
Kraft-Heinz (KHC)                                                               $1.72

Traditional IRA

Southern Co. (SO)                                                             $16.80
Johnson & Johnson (JNJ)                                               $8.00
Realty Income Corp (O)                                                   $2.11

401k

JP Morgan Equity Income R5 (OIERX)                  $2.23
Cohen and Steers Realty Shares (CSRSX)            $8.18

TOTAL FOR MARCH 2017:   $42.16

Year-to-Year Comparison

When adding up all of these dividend payments, they come up to $42.16 for the month of March. This is an increase of nearly 210 percent over the $13.62 of passive dividend income that I received in the same month last year.

My dividend income  for 2017 is now up to $90.35 for the year. I was at a little less than $25 at this point last year. My $42.16 in dividend income would have bought me just north of 2 hours of freedom in March, based upon my estimate of needing $20/hour of passive income to keep up my standard of living without full-time work. My monthly passive dividend income page that tracks my progress over time has an update with this information.

How was your dividend income for March? Let us know in the comments.

If you’d like to keep up with my progress, be sure to sign up for updates in the email signup box near the top of the page. You can also follow me on Twitter.

Disclaimer: I am not a professional financial advisor. I intend this information for informational and educational purposes only. Perform due diligence before investing in any equities. See my disclosures page for more information.

Image credit: Wikimedia Commons