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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 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 Eaton Corp plc (NYSE: ETN), by taking a look at the investment outcome over a twenty year holding period.

Start date: 11/29/2002


End date: 11/28/2022
Start price/share: $18.97
End price/share: $162.55
Starting shares: 527.15
Ending shares: 896.80
Dividends reinvested/share: $32.33
Total return: 1,357.75%
Average annual return: 14.33%
Starting investment: $10,000.00
Ending investment: $145,828.18

The above analysis shows the twenty year investment result worked out quite well, with an annualized rate of return of 14.33%. This would have turned a $10K investment made 20 years ago into $145,828.18 today (as of 11/28/2022). On a total return basis, that’s a result of 1,357.75% (something to think about: how might ETN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Eaton Corp plc paid investors a total of $32.33/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 3.24/share, we calculate that ETN has a current yield of approximately 1.99%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.24 against the original $18.97/share purchase price. This works out to a yield on cost of 10.49%.

One more investment quote to leave you with:
“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.” — Peter Lynch