“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a twenty year holding period for an investor who was considering Cincinnati Financial Corp. (NASD: CINF) back in 2004, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 02/09/2004 |
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| End date: | 02/06/2024 | ||||
| Start price/share: | $39.72 | ||||
| End price/share: | $112.10 | ||||
| Starting shares: | 251.76 | ||||
| Ending shares: | 514.63 | ||||
| Dividends reinvested/share: | $38.12 | ||||
| Total return: | 476.90% | ||||
| Average annual return: | 9.16% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $57,740.31 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 9.16%. This would have turned a $10K investment made 20 years ago into $57,740.31 today (as of 02/06/2024). On a total return basis, that’s a result of 476.90% (something to think about: how might CINF shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Cincinnati Financial Corp. paid investors a total of $38.12/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 CINF has a current yield of approximately 2.89%. 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 $39.72/share purchase price. This works out to a yield on cost of 7.28%.
More investment wisdom to ponder:
“Cash is a fact, profit is an opinion.” — Alfred Rappaport
