“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Deere & Co. (NYSE: DE) back in 2003: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 06/20/2003 |
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| End date: | 06/16/2023 | ||||
| Start price/share: | $23.43 | ||||
| End price/share: | $407.63 | ||||
| Starting shares: | 426.80 | ||||
| Ending shares: | 632.77 | ||||
| Dividends reinvested/share: | $40.19 | ||||
| Total return: | 2,479.38% | ||||
| Average annual return: | 17.64% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $257,806.35 | ||||
As we can see, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 17.64%. This would have turned a $10K investment made 20 years ago into $257,806.35 today (as of 06/16/2023). On a total return basis, that’s a result of 2,479.38% (something to think about: how might DE shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Deere & Co. paid investors a total of $40.19/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 DE has a current yield of approximately 1.23%. 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 $23.43/share purchase price. This works out to a yield on cost of 5.25%.
Here’s one more great investment quote before you go:
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” — Charlie Munger
