“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 2002, and take a look at what happened to investors who asked that very question about Chubb Ltd (NYSE: CB), by taking a look at the investment outcome over a two-decade holding period.
|Average annual return:||16.11%|
As we can see, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 16.11%. This would have turned a $10K investment made 20 years ago into $198,575.51 today (as of 07/27/2022). On a total return basis, that’s a result of 1,886.25% (something to think about: how might CB shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Chubb Ltd paid investors a total of $37.06/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 3.32/share, we calculate that CB has a current yield of approximately 1.78%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.32 against the original $14.52/share purchase price. This works out to a yield on cost of 12.26%.
One more investment quote to leave you with:
“The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successfully and consistently.” — Jack Bogle