“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 MGM Resorts International (NYSE: MGM)? Today, we examine the outcome of a twenty year investment into the stock back in 2000.
| Start date: | 02/04/2000 |
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| End date: | 02/03/2020 | ||||
| Start price/share: | $22.16 | ||||
| End price/share: | $31.21 | ||||
| Starting shares: | 451.26 | ||||
| Ending shares: | 476.59 | ||||
| Dividends reinvested/share: | $1.54 | ||||
| Total return: | 48.75% | ||||
| Average annual return: | 2.00% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $14,862.70 | ||||
As shown above, the twenty year investment result worked out as follows, with an annualized rate of return of 2.00%. This would have turned a $10K investment made 20 years ago into $14,862.70 today (as of 02/03/2020). On a total return basis, that’s a result of 48.75% (something to think about: how might MGM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that MGM Resorts International paid investors a total of $1.54/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 .52/share, we calculate that MGM has a current yield of approximately 1.67%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .52 against the original $22.16/share purchase price. This works out to a yield on cost of 7.54%.
One more investment quote to leave you with:
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” — Warren Buffett
