“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a two-decade holding period for an investor who was considering Johnson Controls International plc (NYSE: JCI) back in 2000, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 11/03/2000 |
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| End date: | 11/02/2020 | ||||
| Start price/share: | $9.92 | ||||
| End price/share: | $43.94 | ||||
| Starting shares: | 1,008.06 | ||||
| Ending shares: | 2,172.68 | ||||
| Dividends reinvested/share: | $23.43 | ||||
| Total return: | 854.68% | ||||
| Average annual return: | 11.94% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $95,552.68 | ||||
As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 11.94%. This would have turned a $10K investment made 20 years ago into $95,552.68 today (as of 11/02/2020). On a total return basis, that’s a result of 854.68% (something to think about: how might JCI shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Johnson Controls International plc paid investors a total of $23.43/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 1.04/share, we calculate that JCI has a current yield of approximately 2.37%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.04 against the original $9.92/share purchase price. This works out to a yield on cost of 23.89%.
Another great investment quote to think about:
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” — George Soros
