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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 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
$10,000

12/27/1999
$182,950

12/23/2019
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