“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 Freeport-McMoran Copper & Gold (NYSE: FCX)? Today, we examine the outcome of a twenty year investment into the stock back in 1999.
| Start date: | 08/23/1999 |
|
|||
| End date: | 08/22/2019 | ||||
| Start price/share: | $8.88 | ||||
| End price/share: | $9.13 | ||||
| Starting shares: | 1,126.13 | ||||
| Ending shares: | 1,805.27 | ||||
| Dividends reinvested/share: | $13.80 | ||||
| Total return: | 64.82% | ||||
| Average annual return: | 2.53% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $16,486.86 | ||||
As we can see, the twenty year investment result worked out as follows, with an annualized rate of return of 2.53%. This would have turned a $10K investment made 20 years ago into $16,486.86 today (as of 08/22/2019). On a total return basis, that’s a result of 64.82% (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 $13.80/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 2.19%. 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 $8.88/share purchase price. This works out to a yield on cost of 24.66%.
One more piece of investment wisdom to leave you with:
“While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology.” — Seth Klarman
