
“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?
A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a twenty year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Air Products & Chemicals Inc (NYSE: APD) back in 2005. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
Start date: | 01/24/2005 |
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End date: | 01/21/2025 | ||||
Start price/share: | $51.79 | ||||
End price/share: | $319.76 | ||||
Starting shares: | 193.09 | ||||
Ending shares: | 310.08 | ||||
Dividends reinvested/share: | $68.95 | ||||
Total return: | 891.50% | ||||
Average annual return: | 12.15% | ||||
Starting investment: | $10,000.00 | ||||
Ending investment: | $99,142.17 |
As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 12.15%. This would have turned a $10K investment made 20 years ago into $99,142.17 today (as of 01/21/2025). On a total return basis, that’s a result of 891.50% (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 $68.95/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 2.21%. 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 $51.79/share purchase price. This works out to a yield on cost of 4.27%.
Here’s one more great investment quote before you go:
“If you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don’t need extraordinary intelligence to succeed as an investor.” — Warren Buffett