“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Church & Dwight Co Inc (NYSE: CHD) back in 2000: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
|Average annual return:||20.05%|
The above analysis shows the two-decade investment result worked out exceptionally well, with an annualized rate of return of 20.05%. This would have turned a $10K investment made 20 years ago into $387,164.55 today (as of 10/14/2020). On a total return basis, that’s a result of 3,771.84% (something to think about: how might CHD shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Church & Dwight Co Inc paid investors a total of $7.42/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 .96/share, we calculate that CHD has a current yield of approximately 1.02%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .96 against the original $3.11/share purchase price. This works out to a yield on cost of 32.80%.
More investment wisdom to ponder:
“If you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don’t need extraordinary intelligence to succeed as an investor.” — Warren Buffett