“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a two-decade period?
Today, let’s look backwards in time to 1999, and take a look at what happened to investors who asked that very question about Walt Disney Co. (NYSE: DIS), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 04/30/1999 |
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| End date: | 04/29/2019 | ||||
| Start price/share: | $31.31 | ||||
| End price/share: | $139.30 | ||||
| Starting shares: | 319.39 | ||||
| Ending shares: | 405.89 | ||||
| Dividends reinvested/share: | $12.91 | ||||
| Total return: | 465.41% | ||||
| Average annual return: | 9.04% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $56,510.45 | ||||
As shown above, the two-decade investment result worked out well, with an annualized rate of return of 9.04%. This would have turned a $10K investment made 20 years ago into $56,510.45 today (as of 04/29/2019). On a total return basis, that’s a result of 465.41% (something to think about: how might DIS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Walt Disney Co. paid investors a total of $12.91/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 1.76/share, we calculate that DIS has a current yield of approximately 1.26%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.76 against the original $31.31/share purchase price. This works out to a yield on cost of 4.02%.
One more investment quote to leave you with:
“All the opportunity in the world means nothing if you don’t actually pull the trigger.” — Sam Zell
