“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a twenty year holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 20 years to 1999, investors considering an investment into shares of Procter & Gamble Company (NYSE: PG) may have been pondering this very question and thinking about their potential investment result over a full twenty year time horizon. Here’s how that would have worked out.
| Start date: | 05/17/1999 |
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| End date: | 05/16/2019 | ||||
| Start price/share: | $47.06 | ||||
| End price/share: | $108.11 | ||||
| Starting shares: | 212.49 | ||||
| Ending shares: | 361.13 | ||||
| Dividends reinvested/share: | $35.03 | ||||
| Total return: | 290.42% | ||||
| Average annual return: | 7.04% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $39,016.27 | ||||
The above analysis shows the twenty year investment result worked out well, with an annualized rate of return of 7.04%. This would have turned a $10K investment made 20 years ago into $39,016.27 today (as of 05/16/2019). On a total return basis, that’s a result of 290.42% (something to think about: how might PG shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Beyond share price change, another component of PG’s total return these past 20 years has been the payment by Procter & Gamble Company of $35.03/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).
Based upon the most recent annualized dividend rate of 2.9836/share, we calculate that PG has a current yield of approximately 2.76%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.9836 against the original $47.06/share purchase price. This works out to a yield on cost of 5.86%.
One more piece of investment wisdom to leave you with:
“The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successfully and consistently.” — Jack Bogle
