“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a twenty year holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 20 years to 2002, investors considering an investment into shares of Brown & Brown Inc (NYSE: BRO) may have been pondering this very question and thinking about their potential investment result over a full twenty year time horizon. Here’s how that would have worked out.
| Start date: | 03/15/2002 |
|
|||
| End date: | 03/14/2022 | ||||
| Start price/share: | $7.44 | ||||
| End price/share: | $63.56 | ||||
| Starting shares: | 1,344.09 | ||||
| Ending shares: | 1,678.03 | ||||
| Dividends reinvested/share: | $3.88 | ||||
| Total return: | 966.56% | ||||
| Average annual return: | 12.56% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $106,685.16 | ||||
The above analysis shows the twenty year investment result worked out quite well, with an annualized rate of return of 12.56%. This would have turned a $10K investment made 20 years ago into $106,685.16 today (as of 03/14/2022). On a total return basis, that’s a result of 966.56% (something to think about: how might BRO shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Brown & Brown Inc paid investors a total of $3.88/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 .41/share, we calculate that BRO has a current yield of approximately 0.65%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .41 against the original $7.44/share purchase price. This works out to a yield on cost of 8.74%.
One more investment quote to leave you with:
“I made my money by selling too soon.” — Bernard Baruch
