So what should the next five years or so hold for J&J’s stock performance? That is very hard to know. What we do know is that the stock currently trades at 13 times earnings, which equates to an after tax earnings yield of 7.7% and compares quite favorably to fixed income alternatives. The ten year treasury currently trades with a pre-tax yield of approximately 2%. While you cannot put J&J’s earnings yield in your pocket each year, it still presents a compelling fundamental advantage over the yield of risk free treasuries, and one that Ben Graham would have likely taken advantage of. The current cash dividend yield today is 3.5%, up from 1.2% in 1999 for an annual dividend growth rate during the period of approximately 12.7%. J&J’s P/E ratio during this almost twelve-year period averaged around 20X, but is at 13 today. If the current P/E ratio is simply maintained going forward, the return for shareholders would be the earnings growth of the company coupled with its dividend yield. Over the next five years, that translates into a 13% to 14% annual total return if the company is able to continue to grow its earnings annually at a 10% rate, and maintain its dividend yield at 3.5%. If we lower our expectations of the company’s future earnings to a more conservative growth rate of 5%, and simply maintain the dividend yield, the investor would still receive an annual return of roughly 8.5% in the stock over the next five years. But let’s assume that the P/E ratio for J&J continues to decline, to say, 10 times earnings over the next five years coupled with more modest 5% earnings growth and a 3.5% dividend yield, the investor would still receive a 3.4% average annual return. Again, your downside is limited by the strength of the company’s earnings power and its dividend. If, as we feel, the more likely scenario is modest P/E expansion coupled with solid growth in its earnings and dividends, we could earn a very attractive double digit return in the stock.