“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 Morgan Stanley (NYSE: MS)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.
| Start date: | 06/28/1999 |
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| End date: | 06/25/2019 | ||||
| Start price/share: | $47.25 | ||||
| End price/share: | $42.66 | ||||
| Starting shares: | 211.64 | ||||
| Ending shares: | 354.83 | ||||
| Dividends reinvested/share: | $28.81 | ||||
| Total return: | 51.37% | ||||
| Average annual return: | 2.09% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $15,125.62 | ||||
As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 2.09%. This would have turned a $10K investment made 20 years ago into $15,125.62 today (as of 06/25/2019). On a total return basis, that’s a result of 51.37% (something to think about: how might MS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Morgan Stanley paid investors a total of $28.81/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 1.2/share, we calculate that MS has a current yield of approximately 2.81%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.2 against the original $47.25/share purchase price. This works out to a yield on cost of 5.95%.
One more investment quote to leave you with:
“The older I get, the more I see a straight path where I want to go. If you’re going to hunt elephants, don’t get off the trail for a rabbit.” — T. Boone Pickens
