“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 US Bancorp (NYSE: USB)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.
| Start date: | 04/05/1999 |
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| End date: | 04/02/2019 | ||||
| Start price/share: | $30.88 | ||||
| End price/share: | $49.14 | ||||
| Starting shares: | 323.83 | ||||
| Ending shares: | 591.79 | ||||
| Dividends reinvested/share: | $19.25 | ||||
| Total return: | 190.81% | ||||
| Average annual return: | 5.48% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $29,075.65 | ||||
The above analysis shows the two-decade investment result worked out well, with an annualized rate of return of 5.48%. This would have turned a $10K investment made 20 years ago into $29,075.65 today (as of 04/02/2019). On a total return basis, that’s a result of 190.81% (something to think about: how might USB shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that US Bancorp paid investors a total of $19.25/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 1.48/share, we calculate that USB has a current yield of approximately 3.01%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.48 against the original $30.88/share purchase price. This works out to a yield on cost of 9.75%.
One more piece of investment wisdom to leave you with:
“If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he is wrong.” — Bernard Baruch
