“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 twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Bank of New York Mellon Corp (NYSE: BK)? Today, we examine the outcome of a twenty year investment into the stock back in 1999.
| Start date: | 04/19/1999 |
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| End date: | 04/17/2019 | ||||
| Start price/share: | $39.95 | ||||
| End price/share: | $48.35 | ||||
| Starting shares: | 250.31 | ||||
| Ending shares: | 373.78 | ||||
| Dividends reinvested/share: | $14.44 | ||||
| Total return: | 80.72% | ||||
| Average annual return: | 3.00% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $18,065.50 | ||||
As shown above, the twenty year investment result worked out as follows, with an annualized rate of return of 3.00%. This would have turned a $10K investment made 20 years ago into $18,065.50 today (as of 04/17/2019). On a total return basis, that’s a result of 80.72% (something to think about: how might BK shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Bank of New York Mellon Corp paid investors a total of $14.44/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 1.12/share, we calculate that BK has a current yield of approximately 2.32%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.12 against the original $39.95/share purchase price. This works out to a yield on cost of 5.81%.
Another great investment quote to think about:
“Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and mutual funds altogether.” — Peter Lynch
