“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 International Paper Co (NYSE: IP)? Today, we examine the outcome of a twenty year investment into the stock back in 1999.
| Start date: | 12/06/1999 |
|
|||
| End date: | 12/03/2019 | ||||
| Start price/share: | $53.25 | ||||
| End price/share: | $46.08 | ||||
| Starting shares: | 187.79 | ||||
| Ending shares: | 354.02 | ||||
| Dividends reinvested/share: | $23.53 | ||||
| Total return: | 63.13% | ||||
| Average annual return: | 2.48% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $16,324.53 | ||||
The above analysis shows the twenty year investment result worked out as follows, with an annualized rate of return of 2.48%. This would have turned a $10K investment made 20 years ago into $16,324.53 today (as of 12/03/2019). On a total return basis, that’s a result of 63.13% (something to think about: how might IP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that International Paper Co paid investors a total of $23.53/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 IP has a current yield of approximately 4.45%. 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 $53.25/share purchase price. This works out to a yield on cost of 8.36%.
One more investment quote to leave you with:
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham
