“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 two-decade 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 Kimberly-Clark Corp. (NYSE: KMB), by taking a look at the investment outcome over a two-decade holding period.
|Average annual return:||7.68%|
As shown above, the two-decade investment result worked out well, with an annualized rate of return of 7.68%. This would have turned a $10K investment made 20 years ago into $43,932.81 today (as of 08/31/2021). On a total return basis, that’s a result of 339.47% (something to think about: how might KMB shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Kimberly-Clark Corp. paid investors a total of $55.89/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 4.56/share, we calculate that KMB has a current yield of approximately 3.31%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.56 against the original $60.70/share purchase price. This works out to a yield on cost of 5.45%.
Here’s one more great investment quote before you go:
“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