“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 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 International Business Machines Corp (NYSE: IBM)? Today, we examine the outcome of a twenty year investment into the stock back in 1999.
|Average annual return:||2.01%|
As shown above, the twenty year investment result worked out as follows, with an annualized rate of return of 2.01%. This would have turned a $10K investment made 20 years ago into $14,891.07 today (as of 07/10/2019). On a total return basis, that’s a result of 48.97% (something to think about: how might IBM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that International Business Machines Corp paid investors a total of $53.10/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 6.48/share, we calculate that IBM has a current yield of approximately 4.61%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.48 against the original $137.81/share purchase price. This works out to a yield on cost of 3.35%.
One more investment quote to leave you with:
“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