“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a twenty year holding period for an investor who was considering Juniper Networks Inc (NYSE: JNPR) back in 2002, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 09/16/2002 |
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| End date: | 09/14/2022 | ||||
| Start price/share: | $6.56 | ||||
| End price/share: | $28.05 | ||||
| Starting shares: | 1,524.39 | ||||
| Ending shares: | 1,853.90 | ||||
| Dividends reinvested/share: | $5.11 | ||||
| Total return: | 420.02% | ||||
| Average annual return: | 8.59% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $52,010.48 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 8.59%. This would have turned a $10K investment made 20 years ago into $52,010.48 today (as of 09/14/2022). On a total return basis, that’s a result of 420.02% (something to think about: how might JNPR shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Juniper Networks Inc paid investors a total of $5.11/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 .84/share, we calculate that JNPR has a current yield of approximately 2.99%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .84 against the original $6.56/share purchase price. This works out to a yield on cost of 45.58%.
Another great investment quote to think about:
“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” — Seth Klarman
