“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 twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Marsh & McLennan Companies Inc. (NYSE: MMC)? Today, we examine the outcome of a twenty year investment into the stock back in 1999.
| Start date: | 07/16/1999 |
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| End date: | 07/15/2019 | ||||
| Start price/share: | $39.47 | ||||
| End price/share: | $103.02 | ||||
| Starting shares: | 253.36 | ||||
| Ending shares: | 414.92 | ||||
| Dividends reinvested/share: | $20.86 | ||||
| Total return: | 327.45% | ||||
| Average annual return: | 7.53% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $42,750.23 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 7.53%. This would have turned a $10K investment made 20 years ago into $42,750.23 today (as of 07/15/2019). On a total return basis, that’s a result of 327.45% (something to think about: how might MMC shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Marsh & McLennan Companies Inc. paid investors a total of $20.86/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 1.82/share, we calculate that MMC has a current yield of approximately 1.77%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.82 against the original $39.47/share purchase price. This works out to a yield on cost of 4.48%.
More investment wisdom to ponder:
“Investors should purchase stocks like they purchase groceries, not like they purchase perfume.” — Benjamin Graham
