Holding Stocks Long Term

Yesterday I did a conference call with AdvisorShares that covered a lot of ground including a reason or two to try to hold stocks (or funds) for the long term. In related news client holding Johnson & Johnson (JNJ) hiked its dividend for the 50th year in a row.

In yesterday's call there were questions about our performance and the context of a call like that allows for specific numbers (the blog does not because it makes a blog post an advertisement which needs approval) and so I made a couple of references to things we have held for years.

Although not mentioned on the call we owned JNJ as far back as when the portfolio's performance started being tracked in 2004. Since then JNJ has paid 31 dividends (I believe the clock on the portfolio starts in August 2004) totaling $13.57. On a price basis JNJ has trailed the S&P 500 by about 15 percentage points. The dividends add another 25 percentage points on to the JNJ result. After factoring in the the SPX yield it is probably close to a push. I would note that the same study done on December 31, 2011 would probably have JNJ noticeably ahead as the stock is flat this year versus an 11% gain for the market.

The stock has not been a huge winner but the yield clearly helps the total return and the relatively low volatility helps with smoothing out the ride.

Another example with a more noticeable difference is Statoil (STO) versus the Energy SPDR (XLE). We've owned STO for almost seven and half years. In that time it has outperformed XLE modestly, by about 6%. Since we've owned STO we have collected $9.74 in dividends which adds 68% to the return in that time. XLE has paid $5.51 in that same time which works out to adding 15% in returns. As a note, the $9.74 includes $1.21 which is being reported by dividend.com at the 2012 payout).

Finally an example where dividends are not the story (as a note I believe in trying to build an above market yield into the portfolio but I do not believe in any version of investing in only dividend payers). We've owned Nike (NKE) for about six years. Since June 30, 2006 Nike is up 162% versus a 12% gain for the S&P 500 (we shaved down the position along the way to rebalance but still own the name).

The point here is that over any six or 12 month time frame any of these stocks can and have lagged the broad market, their respective sector or both but over the many years that they have been held there has been some serious value added. It is important to be cognizant that any great story or long term track record can change but two of the names are clear and away household names that are easy to access and understand. I may have been a relatively early adopter on STO but as the largest company by far in what is probably the healthiest developed economy in the world it was not going to be a secret for very long.

In the past I've mentioned buying and hoping to hold forever. For now, the three above make that list. I've mentioned that Bank Of America (BAC) was on that list until they bought Merrill Lynch after the Lehman weekend. If your goal really is to simply have enough money when you need it then I think time frames noted above make this easier to achieve.