“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 twenty year 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 Progressive Corp. (NYSE: PGR), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 12/27/1999 |
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| End date: | 12/23/2019 | ||||
| Start price/share: | $5.98 | ||||
| End price/share: | $71.69 | ||||
| Starting shares: | 1,672.24 | ||||
| Ending shares: | 2,554.01 | ||||
| Dividends reinvested/share: | $12.28 | ||||
| Total return: | 1,730.97% | ||||
| Average annual return: | 15.64% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $182,950.90 | ||||
The above analysis shows the twenty year investment result worked out exceptionally well, with an annualized rate of return of 15.64%. This would have turned a $10K investment made 20 years ago into $182,950.90 today (as of 12/23/2019). On a total return basis, that’s a result of 1,730.97% (something to think about: how might PGR shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Progressive Corp. paid investors a total of $12.28/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 .4/share, we calculate that PGR has a current yield of approximately 0.56%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .4 against the original $5.98/share purchase price. This works out to a yield on cost of 9.36%.
Here’s one more great investment quote before you go:
“It’s not how much money you make, but how much money you keep.” — Robert Kiyosaki
