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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 2003, and take a look at what happened to investors who asked that very question about Genuine Parts Co. (NYSE: GPC), by taking a look at the investment outcome over a twenty year holding period.

Start date: 05/19/2003
$10,000

05/19/2003
  $93,523

05/18/2023
End date: 05/18/2023
Start price/share: $32.94
End price/share: $164.78
Starting shares: 303.58
Ending shares: 567.24
Dividends reinvested/share: $43.85
Total return: 834.69%
Average annual return: 11.82%
Starting investment: $10,000.00
Ending investment: $93,523.66

As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 11.82%. This would have turned a $10K investment made 20 years ago into $93,523.66 today (as of 05/18/2023). On a total return basis, that’s a result of 834.69% (something to think about: how might GPC shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Genuine Parts Co. paid investors a total of $43.85/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 3.8/share, we calculate that GPC has a current yield of approximately 2.31%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.8 against the original $32.94/share purchase price. This works out to a yield on cost of 7.01%.

Another great investment quote to think about:
“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