“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 Freeport-McMoran Copper & Gold (NYSE: FCX)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.
| Start date: | 05/17/1999 |
|
|||
| End date: | 05/14/2019 | ||||
| Start price/share: | $8.06 | ||||
| End price/share: | $10.86 | ||||
| Starting shares: | 1,240.69 | ||||
| Ending shares: | 1,979.95 | ||||
| Dividends reinvested/share: | $13.75 | ||||
| Total return: | 115.02% | ||||
| Average annual return: | 3.90% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $21,498.19 | ||||
As we can see, the two-decade investment result worked out as follows, with an annualized rate of return of 3.90%. This would have turned a $10K investment made 20 years ago into $21,498.19 today (as of 05/14/2019). On a total return basis, that’s a result of 115.02% (something to think about: how might FCX shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Freeport-McMoran Copper & Gold paid investors a total of $13.75/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 .2/share, we calculate that FCX has a current yield of approximately 1.84%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .2 against the original $8.06/share purchase price. This works out to a yield on cost of 22.83%.
More investment wisdom to ponder:
“Although it’s easy to forget sometimes, a share is not a lottery ticket… it’s part-ownership of a business.” — Peter Lynch
