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“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 Public Storage (NYSE: PSA) back in 2004: 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: 08/02/2004
$10,000

08/02/2004
  $124,893

07/31/2024
End date: 07/31/2024
Start price/share: $47.30
End price/share: $295.92
Starting shares: 211.42
Ending shares: 422.29
Dividends reinvested/share: $126.60
Total return: 1,149.65%
Average annual return: 13.45%
Starting investment: $10,000.00
Ending investment: $124,893.68

As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 13.45%. This would have turned a $10K investment made 20 years ago into $124,893.68 today (as of 07/31/2024). On a total return basis, that’s a result of 1,149.65% (something to think about: how might PSA shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Public Storage paid investors a total of $126.60/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 12/share, we calculate that PSA has a current yield of approximately 4.06%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 12 against the original $47.30/share purchase price. This works out to a yield on cost of 8.58%.

Here’s one more great investment quote before you go:
“A risk-reward ratio is important, but so is an aggravation-satisfaction ratio.” — Muriel Siebert