“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 Colgate-Palmolive Co. (NYSE: CL), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 10/28/2004 |
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| End date: | 10/25/2024 | ||||
| Start price/share: | $22.48 | ||||
| End price/share: | $95.61 | ||||
| Starting shares: | 444.84 | ||||
| Ending shares: | 707.44 | ||||
| Dividends reinvested/share: | $26.94 | ||||
| Total return: | 576.39% | ||||
| Average annual return: | 10.03% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $67,678.34 | ||||
The above analysis shows the two-decade investment result worked out quite well, with an annualized rate of return of 10.03%. This would have turned a $10K investment made 20 years ago into $67,678.34 today (as of 10/25/2024). On a total return basis, that’s a result of 576.39% (something to think about: how might CL shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Colgate-Palmolive Co. paid investors a total of $26.94/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/share, we calculate that CL has a current yield of approximately 2.09%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $22.48/share purchase price. This works out to a yield on cost of 9.30%.
One more piece of investment wisdom to leave you with:
“The best stock to buy is the one you already own.” — Peter Lynch
