“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into PerkinElmer, Inc. (NYSE: PKI) back in 1999: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 07/01/1999 |
|
|||
| End date: | 06/28/2019 | ||||
| Start price/share: | $17.69 | ||||
| End price/share: | $96.34 | ||||
| Starting shares: | 565.29 | ||||
| Ending shares: | 712.54 | ||||
| Dividends reinvested/share: | $5.53 | ||||
| Total return: | 586.46% | ||||
| Average annual return: | 10.11% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $68,669.59 | ||||
The above analysis shows the twenty year investment result worked out quite well, with an annualized rate of return of 10.11%. This would have turned a $10K investment made 20 years ago into $68,669.59 today (as of 06/28/2019). On a total return basis, that’s a result of 586.46% (something to think about: how might PKI shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PerkinElmer, Inc. paid investors a total of $5.53/share in dividends over the 20 holding period, marking a second component of the total return beyond share price change alone. Much like watering a tree, reinvesting dividends can help an investment to grow over time — for the above calculations we assume dividend reinvestment (and for this exercise the closing price on ex-date is used for the reinvestment of a given dividend).
Based upon the most recent annualized dividend rate of .28/share, we calculate that PKI has a current yield of approximately 0.29%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .28 against the original $17.69/share purchase price. This works out to a yield on cost of 1.64%.
One more piece of investment wisdom to leave you with:
“Successful investing is anticipating the anticipations of others.” — John Maynard Keynes
