“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 twenty year 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 ConocoPhillips (NYSE: COP), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 03/23/2000 |
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| End date: | 03/20/2020 | ||||
| Start price/share: | $16.24 | ||||
| End price/share: | $26.84 | ||||
| Starting shares: | 615.76 | ||||
| Ending shares: | 1,128.89 | ||||
| Dividends reinvested/share: | $28.52 | ||||
| Total return: | 202.99% | ||||
| Average annual return: | 5.70% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $30,308.59 | ||||
As we can see, the twenty year investment result worked out well, with an annualized rate of return of 5.70%. This would have turned a $10K investment made 20 years ago into $30,308.59 today (as of 03/20/2020). On a total return basis, that’s a result of 202.99% (something to think about: how might COP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that ConocoPhillips paid investors a total of $28.52/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 1.68/share, we calculate that COP has a current yield of approximately 6.26%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.68 against the original $16.24/share purchase price. This works out to a yield on cost of 38.55%.
One more investment quote to leave you with:
“Though tempting, trying to time the market is a loser’s game.” — Christopher Davis
