“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 PVH Corp (NYSE: PVH), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 11/22/1999 |
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| End date: | 11/19/2019 | ||||
| Start price/share: | $8.44 | ||||
| End price/share: | $98.20 | ||||
| Starting shares: | 1,185.19 | ||||
| Ending shares: | 1,308.89 | ||||
| Dividends reinvested/share: | $3.00 | ||||
| Total return: | 1,185.33% | ||||
| Average annual return: | 13.61% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $128,420.65 | ||||
The above analysis shows the two-decade investment result worked out quite well, with an annualized rate of return of 13.61%. This would have turned a $10K investment made 20 years ago into $128,420.65 today (as of 11/19/2019). On a total return basis, that’s a result of 1,185.33% (something to think about: how might PVH shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PVH Corp paid investors a total of $3.00/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 .15/share, we calculate that PVH has a current yield of approximately 0.15%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .15 against the original $8.44/share purchase price. This works out to a yield on cost of 1.78%.
One more investment quote to leave you with:
“A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.” — Benjamin Graham
