“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 Occidental Petroleum Corp (NYSE: OXY)? Today, we examine the outcome of a twenty year investment into the stock back in 2000.
| Start date: | 03/27/2000 |
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| End date: | 03/25/2020 | ||||
| Start price/share: | $9.10 | ||||
| End price/share: | $12.00 | ||||
| Starting shares: | 1,098.90 | ||||
| Ending shares: | 2,134.59 | ||||
| Dividends reinvested/share: | $33.39 | ||||
| Total return: | 156.15% | ||||
| Average annual return: | 4.81% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $25,595.65 | ||||
As we can see, the twenty year investment result worked out as follows, with an annualized rate of return of 4.81%. This would have turned a $10K investment made 20 years ago into $25,595.65 today (as of 03/25/2020). On a total return basis, that’s a result of 156.15% (something to think about: how might OXY shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Occidental Petroleum Corp paid investors a total of $33.39/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 3.16/share, we calculate that OXY has a current yield of approximately 26.33%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.16 against the original $9.10/share purchase price. This works out to a yield on cost of 289.34%.
Another great investment quote to think about:
“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
