“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
A critical pearl of wisdom from Warren Buffett teaches us that with any potential stock investment we may make, as soon as our buy order is filled we will have a choice: to remain a co-owner of that company for the long haul, or to react to the inevitable short-term ups and downs that the stock market is famous for (sometimes sharp ups and downs).
The reality of this choice forces us to challenge our confidence in any given company we might invest into, and keep our eyes on the long-term time horizon. The market may go up and down the interim, but over a twenty year holding period, will the investment succeed?
Back in 1999, investors may have been asking themselves that very question about Conagra Brands Inc (NYSE: CAG). Let’s examine what would have happened over a twenty year holding period, had you invested in CAG shares back in 1999 and held on.
| Start date: | 12/20/1999 |
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| End date: | 12/17/2019 | ||||
| Start price/share: | $16.88 | ||||
| End price/share: | $29.19 | ||||
| Starting shares: | 592.42 | ||||
| Ending shares: | 1,174.25 | ||||
| Dividends reinvested/share: | $14.69 | ||||
| Total return: | 242.76% | ||||
| Average annual return: | 6.35% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $34,268.60 | ||||
The above analysis shows the twenty year investment result worked out well, with an annualized rate of return of 6.35%. This would have turned a $10K investment made 20 years ago into $34,268.60 today (as of 12/17/2019). On a total return basis, that’s a result of 242.76% (something to think about: how might CAG shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Beyond share price change, another component of CAG’s total return these past 20 years has been the payment by Conagra Brands Inc of $14.69/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).
Based upon the most recent annualized dividend rate of .85/share, we calculate that CAG has a current yield of approximately 2.91%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .85 against the original $16.88/share purchase price. This works out to a yield on cost of 17.24%.
One more investment quote to leave you with:
“If you’re looking for a home run, a great investment for five years or 10 years or more, then the only way to beat this enormous fog that covers the future is to identify a long-term trend that will give a particular business some sort of edge.” — Ralph Wanger
