“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Pioneer Natural Resources Co (NYSE: PXD)? Today, we examine the outcome of a two-decade investment into the stock back in 2003.
| Start date: | 03/31/2003 |
|
|||
| End date: | 03/30/2023 | ||||
| Start price/share: | $25.10 | ||||
| End price/share: | $202.06 | ||||
| Starting shares: | 398.41 | ||||
| Ending shares: | 506.61 | ||||
| Dividends reinvested/share: | $43.53 | ||||
| Total return: | 923.65% | ||||
| Average annual return: | 12.33% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $102,407.13 | ||||
As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 12.33%. This would have turned a $10K investment made 20 years ago into $102,407.13 today (as of 03/30/2023). On a total return basis, that’s a result of 923.65% (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 $43.53/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 4.4/share, we calculate that PXD has a current yield of approximately 2.18%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.4 against the original $25.10/share purchase price. This works out to a yield on cost of 8.69%.
One more investment quote to leave you with:
“While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology.” — Seth Klarman
