“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a two-decade period?
Today, let’s look backwards in time to 1999, and take a look at what happened to investors who asked that very question about Helmerich & Payne, Inc. (NYSE: HP), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 09/07/1999 |
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| End date: | 09/03/2019 | ||||
| Start price/share: | $14.69 | ||||
| End price/share: | $36.36 | ||||
| Starting shares: | 680.74 | ||||
| Ending shares: | 1,334.43 | ||||
| Dividends reinvested/share: | $24.25 | ||||
| Total return: | 385.20% | ||||
| Average annual return: | 8.22% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $48,556.19 | ||||
The above analysis shows the two-decade investment result worked out well, with an annualized rate of return of 8.22%. This would have turned a $10K investment made 20 years ago into $48,556.19 today (as of 09/03/2019). On a total return basis, that’s a result of 385.20% (something to think about: how might HP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Helmerich & Payne, Inc. paid investors a total of $24.25/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 2.84/share, we calculate that HP has a current yield of approximately 7.81%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.84 against the original $14.69/share purchase price. This works out to a yield on cost of 53.17%.
Another great investment quote to think about:
“A risk-reward ratio is important, but so is an aggravation-satisfaction ratio.” — Muriel Siebert
