“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Automatic Data Processing Inc. (NASD: ADP)? Today, we examine the outcome of a twenty year investment into the stock back in 2002.
|Average annual return:||13.30%|
As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 13.30%. This would have turned a $10K investment made 20 years ago into $121,589.30 today (as of 11/22/2022). On a total return basis, that’s a result of 1,115.13% (something to think about: how might ADP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Automatic Data Processing Inc. paid investors a total of $35.59/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 5/share, we calculate that ADP has a current yield of approximately 1.91%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5 against the original $33.99/share purchase price. This works out to a yield on cost of 5.62%.
Another great investment quote to think about:
“Thousands of experts study overbought indicators, head-and-shoulder patterns, put-call ratios, the Fed’s policy on money supplyâ€¦and they can’t predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack.” — Peter Lynch