“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Procter & Gamble Company (NYSE: PG)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.
| Start date: | 06/19/2000 |
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| End date: | 06/16/2020 | ||||
| Start price/share: | $28.05 | ||||
| End price/share: | $118.13 | ||||
| Starting shares: | 356.51 | ||||
| Ending shares: | 612.58 | ||||
| Dividends reinvested/share: | $37.42 | ||||
| Total return: | 623.64% | ||||
| Average annual return: | 10.40% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $72,379.72 | ||||
The above analysis shows the two-decade investment result worked out quite well, with an annualized rate of return of 10.40%. This would have turned a $10K investment made 20 years ago into $72,379.72 today (as of 06/16/2020). On a total return basis, that’s a result of 623.64% (something to think about: how might PG shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Procter & Gamble Company paid investors a total of $37.42/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 3.1628/share, we calculate that PG has a current yield of approximately 2.68%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.1628 against the original $28.05/share purchase price. This works out to a yield on cost of 9.55%.
One more investment quote to leave you with:
“You make most of your money in a bear market, you just don’t realize it at the time.” — Shelby Davis
