“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 L Brands, Inc (NYSE: LB)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.
| Start date: | 09/27/1999 |
|
|||
| End date: | 09/24/2019 | ||||
| Start price/share: | $37.00 | ||||
| End price/share: | $18.43 | ||||
| Starting shares: | 270.27 | ||||
| Ending shares: | 735.66 | ||||
| Dividends reinvested/share: | $37.30 | ||||
| Total return: | 35.58% | ||||
| Average annual return: | 1.53% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $13,549.52 | ||||
As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 1.53%. This would have turned a $10K investment made 20 years ago into $13,549.52 today (as of 09/24/2019). On a total return basis, that’s a result of 35.58% (something to think about: how might LB shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that L Brands, Inc paid investors a total of $37.30/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 LB has a current yield of approximately 6.51%. 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 $37.00/share purchase price. This works out to a yield on cost of 17.59%.
More investment wisdom to ponder:
“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” — Warren Buffett
