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“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 Paychex Inc (NASD: PAYX), by taking a look at the investment outcome over a two-decade holding period.

Start date: 11/12/1999
$10,000

11/12/1999
$51,450

11/11/2019
End date: 11/11/2019
Start price/share: $28.21
End price/share: $82.83
Starting shares: 354.48
Ending shares: 621.54
Dividends reinvested/share: $23.23
Total return: 414.82%
Average annual return: 8.53%
Starting investment: $10,000.00
Ending investment: $51,450.03

As shown above, the two-decade investment result worked out well, with an annualized rate of return of 8.53%. This would have turned a $10K investment made 20 years ago into $51,450.03 today (as of 11/11/2019). On a total return basis, that’s a result of 414.82% (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.]

Beyond share price change, another component of PAYX’s total return these past 20 years has been the payment by Paychex Inc of $23.23/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).

Based upon the most recent annualized dividend rate of 2.48/share, we calculate that PAYX has a current yield of approximately 2.99%. 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 $28.21/share purchase price. This works out to a yield on cost of 10.60%.

More investment wisdom to ponder:
“Sometimes buying early on the way down looks like being wrong, but it isn’t.” — Seth Klarman