“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 |
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| 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
