“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a two-decade period?
Today, let’s look backwards in time to 2000, and take a look at what happened to investors who asked that very question about Marathon Oil Corp. (NYSE: MRO), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 02/14/2000 |
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| End date: | 02/11/2020 | ||||
| Start price/share: | $6.97 | ||||
| End price/share: | $11.57 | ||||
| Starting shares: | 1,434.72 | ||||
| Ending shares: | 2,348.51 | ||||
| Dividends reinvested/share: | $8.79 | ||||
| Total return: | 171.72% | ||||
| Average annual return: | 5.12% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $27,153.50 | ||||
The above analysis shows the two-decade investment result worked out well, with an annualized rate of return of 5.12%. This would have turned a $10K investment made 20 years ago into $27,153.50 today (as of 02/11/2020). On a total return basis, that’s a result of 171.72% (something to think about: how might MRO shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Marathon Oil Corp. paid investors a total of $8.79/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/share, we calculate that MRO has a current yield of approximately 1.73%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .2 against the original $6.97/share purchase price. This works out to a yield on cost of 24.82%.
More investment wisdom to ponder:
“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
