“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 Morgan Stanley (NYSE: MS)? Today, we examine the outcome of a twenty year investment into the stock back in 2000.
| Start date: | 01/31/2000 |
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| End date: | 01/30/2020 | ||||
| Start price/share: | $66.25 | ||||
| End price/share: | $53.82 | ||||
| Starting shares: | 150.94 | ||||
| Ending shares: | 254.93 | ||||
| Dividends reinvested/share: | $29.07 | ||||
| Total return: | 37.20% | ||||
| Average annual return: | 1.59% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $13,711.79 | ||||
The above analysis shows the twenty year investment result worked out as follows, with an annualized rate of return of 1.59%. This would have turned a $10K investment made 20 years ago into $13,711.79 today (as of 01/30/2020). On a total return basis, that’s a result of 37.20% (something to think about: how might MS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Morgan Stanley paid investors a total of $29.07/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 1.4/share, we calculate that MS has a current yield of approximately 2.60%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.4 against the original $66.25/share purchase price. This works out to a yield on cost of 3.92%.
Here’s one more great investment quote before you go:
“Never is there a better time to buy a stock than when a basically sound company, for whatever reason, temporarily falls out of favor with the investment community.” — Geraldine Weiss
