“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 Valero Energy Corp (NYSE: VLO)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.
| Start date: | 09/07/1999 |
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| End date: | 09/05/2019 | ||||
| Start price/share: | $5.15 | ||||
| End price/share: | $76.79 | ||||
| Starting shares: | 1,941.75 | ||||
| Ending shares: | 2,848.89 | ||||
| Dividends reinvested/share: | $18.18 | ||||
| Total return: | 2,087.66% | ||||
| Average annual return: | 16.67% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $218,642.36 | ||||
As we can see, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 16.67%. This would have turned a $10K investment made 20 years ago into $218,642.36 today (as of 09/05/2019). On a total return basis, that’s a result of 2,087.66% (something to think about: how might VLO shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Valero Energy Corp paid investors a total of $18.18/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 3.6/share, we calculate that VLO has a current yield of approximately 4.69%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.6 against the original $5.15/share purchase price. This works out to a yield on cost of 91.07%.
More investment wisdom to ponder:
“The person who starts simply with the idea of getting rich won’t succeed; you must have a larger ambition.” — John Rockefeller
