“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 2001, and take a look at what happened to investors who asked that very question about Church & Dwight Co Inc (NYSE: CHD), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 03/22/2001 |
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| End date: | 03/19/2021 | ||||
| Start price/share: | $3.57 | ||||
| End price/share: | $83.09 | ||||
| Starting shares: | 2,801.12 | ||||
| Ending shares: | 3,567.07 | ||||
| Dividends reinvested/share: | $7.89 | ||||
| Total return: | 2,863.88% | ||||
| Average annual return: | 18.46% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $296,234.84 | ||||
The above analysis shows the twenty year investment result worked out exceptionally well, with an annualized rate of return of 18.46%. This would have turned a $10K investment made 20 years ago into $296,234.84 today (as of 03/19/2021). On a total return basis, that’s a result of 2,863.88% (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 $7.89/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 1.01/share, we calculate that CHD has a current yield of approximately 1.22%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.01 against the original $3.57/share purchase price. This works out to a yield on cost of 34.17%.
One more investment quote to leave you with:
“Cash combined with courage in a time of crisis is priceless.” — Warren Buffett
