“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Caterpillar (NYSE: CAT)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.
| Start date: | 03/08/1999 |
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| End date: | 03/05/2019 | ||||
| Start price/share: | $24.81 | ||||
| End price/share: | $137.14 | ||||
| Starting shares: | 403.06 | ||||
| Ending shares: | 684.43 | ||||
| Dividends reinvested/share: | $34.17 | ||||
| Total return: | 838.62% | ||||
| Average annual return: | 11.84% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $93,801.43 | ||||
The above analysis shows the two-decade investment result worked out quite well, with an annualized rate of return of 11.84%. This would have turned a $10K investment made 20 years ago into $93,801.43 today (as of 03/05/2019). On a total return basis, that’s a result of 838.62% (something to think about: how might CAT 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 CAT’s total return these past 20 years has been the payment by Caterpillar Inc. of $34.17/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 3.44/share, we calculate that CAT has a current yield of approximately 2.51%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.44 against the original $24.81/share purchase price. This works out to a yield on cost of 10.12%.
More investment wisdom to ponder:
“When the public is most frightened, only the strong are left, and that’s when the market is in the best possible hands.” — Victor Niederhoffer
