“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The investment philosophy practiced by Warren Buffett calls for investors to take a long-term horizon when making an investment, such as a two-decade holding period (or even longer), and reconsider making the investment in the first place if unable to envision holding the stock for at least five years. Today, we look at how such a long-term strategy would have done for investors in Paychex Inc (NASD: PAYX) back in 1999, holding through to today.
| Start date: | 05/06/1999 |
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| End date: | 05/03/2019 | ||||
| Start price/share: | $21.89 | ||||
| End price/share: | $84.61 | ||||
| Starting shares: | 456.83 | ||||
| Ending shares: | 786.90 | ||||
| Dividends reinvested/share: | $21.47 | ||||
| Total return: | 565.80% | ||||
| Average annual return: | 9.94% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $66,579.44 | ||||
As we can see, the two-decade investment result worked out well, with an annualized rate of return of 9.94%. This would have turned a $10K investment made 20 years ago into $66,579.44 today (as of 05/03/2019). On a total return basis, that’s a result of 565.80% (something to think about: how might PAYX shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 20 years, Paychex Inc has paid $21.47/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 2.48/share, we calculate that PAYX has a current yield of approximately 2.93%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.48 against the original $21.89/share purchase price. This works out to a yield on cost of 13.39%.
One more piece of investment wisdom to leave you with:
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” — Warren Buffett
