“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 2002, and take a look at what happened to investors who asked that very question about Analog Devices Inc (NASD: ADI), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 07/29/2002 |
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| End date: | 07/26/2022 | ||||
| Start price/share: | $24.25 | ||||
| End price/share: | $161.78 | ||||
| Starting shares: | 412.37 | ||||
| Ending shares: | 630.27 | ||||
| Dividends reinvested/share: | $25.31 | ||||
| Total return: | 919.65% | ||||
| Average annual return: | 12.31% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $102,010.48 | ||||
The above analysis shows the twenty year investment result worked out quite well, with an annualized rate of return of 12.31%. This would have turned a $10K investment made 20 years ago into $102,010.48 today (as of 07/26/2022). On a total return basis, that’s a result of 919.65% (something to think about: how might ADI shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Analog Devices Inc paid investors a total of $25.31/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 3.04/share, we calculate that ADI has a current yield of approximately 1.88%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.04 against the original $24.25/share purchase price. This works out to a yield on cost of 7.75%.
Here’s one more great investment quote before you go:
“He who earns and does not invest will have to work for the rest of his life.” — Debasish Mridha
