“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 Emerson Electric Co. (NYSE: EMR)? Today, we examine the outcome of a twenty year investment into the stock back in 1999.
| Start date: | 09/13/1999 |
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| End date: | 09/11/2019 | ||||
| Start price/share: | $32.94 | ||||
| End price/share: | $65.20 | ||||
| Starting shares: | 303.58 | ||||
| Ending shares: | 537.34 | ||||
| Dividends reinvested/share: | $26.42 | ||||
| Total return: | 250.34% | ||||
| Average annual return: | 6.47% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $35,056.53 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 6.47%. This would have turned a $10K investment made 20 years ago into $35,056.53 today (as of 09/11/2019). On a total return basis, that’s a result of 250.34% (something to think about: how might EMR shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Emerson Electric Co. paid investors a total of $26.42/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 1.96/share, we calculate that EMR has a current yield of approximately 3.01%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.96 against the original $32.94/share purchase price. This works out to a yield on cost of 9.14%.
One more piece of investment wisdom to leave you with:
“All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.” — Peter Lynch
