“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 two-decade period?
Today, let’s look backwards in time to 2004, and take a look at what happened to investors who asked that very question about Air Products & Chemicals Inc (NYSE: APD), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 05/28/2004 |
|
|||
| End date: | 05/24/2024 | ||||
| Start price/share: | $46.23 | ||||
| End price/share: | $264.61 | ||||
| Starting shares: | 216.31 | ||||
| Ending shares: | 346.12 | ||||
| Dividends reinvested/share: | $64.44 | ||||
| Total return: | 815.86% | ||||
| Average annual return: | 11.71% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $91,616.31 | ||||
As we can see, the two-decade investment result worked out quite well, with an annualized rate of return of 11.71%. This would have turned a $10K investment made 20 years ago into $91,616.31 today (as of 05/24/2024). On a total return basis, that’s a result of 815.86% (something to think about: how might APD shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Air Products & Chemicals Inc paid investors a total of $64.44/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 7.08/share, we calculate that APD has a current yield of approximately 2.68%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 7.08 against the original $46.23/share purchase price. This works out to a yield on cost of 5.80%.
One more investment quote to leave you with:
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.” — Howard Marks
A
