“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 Waste Management, Inc. (NYSE: WM)? Today, we examine the outcome of a twenty year investment into the stock back in 1999.
| Start date: | 10/18/1999 |
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| End date: | 10/17/2019 | ||||
| Start price/share: | $17.50 | ||||
| End price/share: | $116.28 | ||||
| Starting shares: | 571.43 | ||||
| Ending shares: | 925.34 | ||||
| Dividends reinvested/share: | $20.95 | ||||
| Total return: | 975.98% | ||||
| Average annual return: | 12.61% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $107,672.40 | ||||
As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 12.61%. This would have turned a $10K investment made 20 years ago into $107,672.40 today (as of 10/17/2019). On a total return basis, that’s a result of 975.98% (something to think about: how might WM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Waste Management, Inc. paid investors a total of $20.95/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 2.05/share, we calculate that WM has a current yield of approximately 1.76%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.05 against the original $17.50/share purchase price. This works out to a yield on cost of 10.06%.
More investment wisdom to ponder:
“I make no attempt to forecast the market; my efforts are devoted to finding undervalued securities.” — Warren Buffett
