“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 United Parcel Service Inc (NYSE: UPS)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.
| Start date: | 11/11/1999 |
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| End date: | 11/01/2019 | ||||
| Start price/share: | $75.00 | ||||
| End price/share: | $119.51 | ||||
| Starting shares: | 133.33 | ||||
| Ending shares: | 216.20 | ||||
| Dividends reinvested/share: | $39.77 | ||||
| Total return: | 158.39% | ||||
| Average annual return: | 4.86% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $25,814.18 | ||||
As we can see, the two-decade investment result worked out as follows, with an annualized rate of return of 4.86%. This would have turned a $10K investment made 20 years ago into $25,814.18 today (as of 11/01/2019). On a total return basis, that’s a result of 158.39% (something to think about: how might UPS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that United Parcel Service Inc paid investors a total of $39.77/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 3.84/share, we calculate that UPS has a current yield of approximately 3.21%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.84 against the original $75.00/share purchase price. This works out to a yield on cost of 4.28%.
One more investment quote to leave you with:
“There’s a virtuous cycle when people have to defend challenges to their ideas. Any gaps in thinking or analysis become clear pretty quickly when smart people ask good, logical questions.” — Joel Greenblatt
