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“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 two-decade holding period for an investor who was considering Valero Energy Corp (NYSE: VLO) back in 2004, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 04/12/2004
$10,000

04/12/2004
  $220,618

04/11/2024
End date: 04/11/2024
Start price/share: $13.78
End price/share: $177.04
Starting shares: 725.69
Ending shares: 1,245.50
Dividends reinvested/share: $35.61
Total return: 2,105.04%
Average annual return: 16.72%
Starting investment: $10,000.00
Ending investment: $220,618.24

As we can see, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 16.72%. This would have turned a $10K investment made 20 years ago into $220,618.24 today (as of 04/11/2024). On a total return basis, that’s a result of 2,105.04% (something to think about: how might VLO shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Valero Energy Corp paid investors a total of $35.61/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 4.28/share, we calculate that VLO has a current yield of approximately 2.42%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.28 against the original $13.78/share purchase price. This works out to a yield on cost of 17.56%.

One more piece of investment wisdom to leave you with:
“There’s a virtuous cycle when people have to defend challenges to their ideas. Any gaps in thinking or analysis become clear pretty quickly when smart people ask good, logical questions.” — Joel Greenblatt