“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 Altria Group Inc (NYSE: MO)? Today, we examine the outcome of a twenty year investment into the stock back in 1999.
| Start date: | 10/07/1999 |
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| End date: | 10/04/2019 | ||||
| Start price/share: | $34.56 | ||||
| End price/share: | $41.65 | ||||
| Starting shares: | 289.33 | ||||
| Ending shares: | 3,610.29 | ||||
| Dividends reinvested/share: | $118.62 | ||||
| Total return: | 1,403.68% | ||||
| Average annual return: | 14.51% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $150,380.22 | ||||
As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 14.51%. This would have turned a $10K investment made 20 years ago into $150,380.22 today (as of 10/04/2019). On a total return basis, that’s a result of 1,403.68% (something to think about: how might MO shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Altria Group Inc paid investors a total of $118.62/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 3.36/share, we calculate that MO has a current yield of approximately 8.07%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.36 against the original $34.56/share purchase price. This works out to a yield on cost of 23.35%.
One more piece of investment wisdom to leave you with:
“Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic.” — Warren Buffett
