“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 Medtronic PLC (NYSE: MDT), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 09/27/2004 |
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| End date: | 09/26/2024 | ||||
| Start price/share: | $50.50 | ||||
| End price/share: | $89.45 | ||||
| Starting shares: | 198.02 | ||||
| Ending shares: | 297.13 | ||||
| Dividends reinvested/share: | $28.16 | ||||
| Total return: | 165.78% | ||||
| Average annual return: | 5.01% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $26,597.81 | ||||
As we can see, the two-decade investment result worked out well, with an annualized rate of return of 5.01%. This would have turned a $10K investment made 20 years ago into $26,597.81 today (as of 09/26/2024). On a total return basis, that’s a result of 165.78% (something to think about: how might MDT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Medtronic PLC paid investors a total of $28.16/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 2.8/share, we calculate that MDT has a current yield of approximately 3.13%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.8 against the original $50.50/share purchase price. This works out to a yield on cost of 6.20%.
One more piece of investment wisdom to leave you with:
“When everyone is going right, look left.” — Sam Zell
