“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 Sherwin-Williams Co (NYSE: SHW) 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: | 08/16/2002 |
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| End date: | 08/15/2022 | ||||
| Start price/share: | $9.94 | ||||
| End price/share: | $257.34 | ||||
| Starting shares: | 1,006.04 | ||||
| Ending shares: | 1,358.85 | ||||
| Dividends reinvested/share: | $16.37 | ||||
| Total return: | 3,396.85% | ||||
| Average annual return: | 19.44% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $349,817.37 | ||||
As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 19.44%. This would have turned a $10K investment made 20 years ago into $349,817.37 today (as of 08/15/2022). On a total return basis, that’s a result of 3,396.85% (something to think about: how might SHW shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Sherwin-Williams Co paid investors a total of $16.37/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 2.4/share, we calculate that SHW has a current yield of approximately 0.93%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.4 against the original $9.94/share purchase price. This works out to a yield on cost of 9.36%.
More investment wisdom to ponder:
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” — Albert Einstein
