“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 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 Verizon Communications Inc (NYSE: VZ)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.
| Start date: | 11/01/1999 |
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| End date: | 10/29/2019 | ||||
| Start price/share: | $57.96 | ||||
| End price/share: | $60.19 | ||||
| Starting shares: | 172.53 | ||||
| Ending shares: | 424.89 | ||||
| Dividends reinvested/share: | $36.44 | ||||
| Total return: | 155.74% | ||||
| Average annual return: | 4.81% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $25,592.36 | ||||
The above analysis shows the two-decade investment result worked out as follows, with an annualized rate of return of 4.81%. This would have turned a $10K investment made 20 years ago into $25,592.36 today (as of 10/29/2019). On a total return basis, that’s a result of 155.74% (something to think about: how might VZ shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Verizon Communications Inc paid investors a total of $36.44/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 2.46/share, we calculate that VZ has a current yield of approximately 4.09%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.46 against the original $57.96/share purchase price. This works out to a yield on cost of 7.06%.
Another great investment quote to think about:
“Games are won by players who focus on the playing field, not by those whose eyes are glued to the scoreboard.” — Warren Buffett
