“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 twenty year 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 Goldman Sachs Group Inc (the (NYSE: GS), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 05/05/1999 |
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| End date: | 05/02/2019 | ||||
| Start price/share: | $69.12 | ||||
| End price/share: | $204.99 | ||||
| Starting shares: | 144.67 | ||||
| Ending shares: | 178.34 | ||||
| Dividends reinvested/share: | $31.03 | ||||
| Total return: | 265.58% | ||||
| Average annual return: | 6.69% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $36,528.21 | ||||
As we can see, the twenty year investment result worked out well, with an annualized rate of return of 6.69%. This would have turned a $10K investment made 20 years ago into $36,528.21 today (as of 05/02/2019). On a total return basis, that’s a result of 265.58% (something to think about: how might GS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Goldman Sachs Group Inc (the paid investors a total of $31.03/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 3.4/share, we calculate that GS has a current yield of approximately 1.66%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.4 against the original $69.12/share purchase price. This works out to a yield on cost of 2.40%.
More investment wisdom to ponder:
“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.” — Peter Lynch
