“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 The Charles Schwab Corporation (NYSE: SCHW)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.
| Start date: | 05/24/1999 |
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| End date: | 05/21/2019 | ||||
| Start price/share: | $106.38 | ||||
| End price/share: | $44.02 | ||||
| Starting shares: | 94.01 | ||||
| Ending shares: | 118.28 | ||||
| Dividends reinvested/share: | $4.95 | ||||
| Total return: | -47.93% | ||||
| Average annual return: | -3.21% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $5,206.34 | ||||
The above analysis shows the two-decade investment result worked out poorly, with an annualized rate of return of -3.21%. This would have turned a $10K investment made 20 years ago into $5,206.34 today (as of 05/21/2019). On a total return basis, that’s a result of -47.93% (something to think about: how might SCHW shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that The Charles Schwab Corporation paid investors a total of $4.95/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 .68/share, we calculate that SCHW has a current yield of approximately 1.54%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .68 against the original $106.38/share purchase price. This works out to a yield on cost of 1.45%.
One more investment quote to leave you with:
“Ensure management’s interests are aligned with shareholders.” — Sam Zell
