“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 twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into PPG Industries Inc (NYSE: PPG) back in 2005: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 03/07/2005 |
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| End date: | 03/06/2025 | ||||
| Start price/share: | $36.74 | ||||
| End price/share: | $115.37 | ||||
| Starting shares: | 272.18 | ||||
| Ending shares: | 425.42 | ||||
| Dividends reinvested/share: | $31.88 | ||||
| Total return: | 390.81% | ||||
| Average annual return: | 8.27% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $49,038.92 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 8.27%. This would have turned a $10K investment made 20 years ago into $49,038.92 today (as of 03/06/2025). On a total return basis, that’s a result of 390.81% (something to think about: how might PPG shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PPG Industries Inc paid investors a total of $31.88/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 2.72/share, we calculate that PPG has a current yield of approximately 2.36%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.72 against the original $36.74/share purchase price. This works out to a yield on cost of 6.42%.
Here’s one more great investment quote before you go:
“There’s a virtuous cycle when people have to defend challenges to their ideas. Any gaps in thinking or analysis become clear pretty quickly when smart people ask good, logical questions.” — Joel Greenblatt
