“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 Macy’s Inc (NYSE: M)? Today, we examine the outcome of a twenty year investment into the stock back in 1999.
| Start date: | 11/29/1999 |
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| End date: | 11/26/2019 | ||||
| Start price/share: | $45.62 | ||||
| End price/share: | $15.37 | ||||
| Starting shares: | 219.18 | ||||
| Ending shares: | 334.22 | ||||
| Dividends reinvested/share: | $14.09 | ||||
| Total return: | -48.63% | ||||
| Average annual return: | -3.27% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $5,142.15 | ||||
As shown above, the twenty year investment result worked out poorly, with an annualized rate of return of -3.27%. This would have turned a $10K investment made 20 years ago into $5,142.15 today (as of 11/26/2019). On a total return basis, that’s a result of -48.63% (something to think about: how might M shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Macy’s Inc paid investors a total of $14.09/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 1.51/share, we calculate that M has a current yield of approximately 9.82%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.51 against the original $45.62/share purchase price. This works out to a yield on cost of 21.53%.
One more piece of investment wisdom to leave you with:
“An investment in knowledge pays the best interest.” — Benjamin Franklin
