“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 Thermo Fisher Scientific Inc (NYSE: TMO), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 08/23/2004 |
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| End date: | 08/21/2024 | ||||
| Start price/share: | $26.27 | ||||
| End price/share: | $610.17 | ||||
| Starting shares: | 380.66 | ||||
| Ending shares: | 399.94 | ||||
| Dividends reinvested/share: | $10.28 | ||||
| Total return: | 2,340.29% | ||||
| Average annual return: | 17.31% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $243,933.01 | ||||
The above analysis shows the two-decade investment result worked out exceptionally well, with an annualized rate of return of 17.31%. This would have turned a $10K investment made 20 years ago into $243,933.01 today (as of 08/21/2024). On a total return basis, that’s a result of 2,340.29% (something to think about: how might TMO shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Thermo Fisher Scientific Inc paid investors a total of $10.28/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 1.56/share, we calculate that TMO has a current yield of approximately 0.26%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.56 against the original $26.27/share purchase price. This works out to a yield on cost of 0.99%.
Another great investment quote to think about:
“We ignore outlooks and forecasts… we’re lousy at it and we admit it … everyone else is lousy too, but most people won’t admit it.” — Martin Whitman
