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“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 Pioneer Natural Resources Co (NYSE: PXD), by taking a look at the investment outcome over a two-decade holding period.

Start date: 07/22/2002


End date: 07/21/2022
Start price/share: $20.85
End price/share: $213.28
Starting shares: 479.62
Ending shares: 560.45
Dividends reinvested/share: $23.67
Total return: 1,095.32%
Average annual return: 13.20%
Starting investment: $10,000.00
Ending investment: $119,541.48

As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 13.20%. This would have turned a $10K investment made 20 years ago into $119,541.48 today (as of 07/21/2022). On a total return basis, that’s a result of 1,095.32% (something to think about: how might PXD shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Pioneer Natural Resources Co paid investors a total of $23.67/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 2.48/share, we calculate that PXD has a current yield of approximately 1.16%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.48 against the original $20.85/share purchase price. This works out to a yield on cost of 5.56%.

One more investment quote to leave you with:
“You can get in much more trouble with a good idea than a bad idea, because you forget that the good idea has limits.” — Benjamin Graham