“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 two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Etrade Financial Corporation (NASD: ETFC)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.
| Start date: | 03/20/2000 |
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| End date: | 03/18/2020 | ||||
| Start price/share: | $284.38 | ||||
| End price/share: | $29.36 | ||||
| Starting shares: | 35.16 | ||||
| Ending shares: | 35.81 | ||||
| Dividends reinvested/share: | $0.84 | ||||
| Total return: | -89.49% | ||||
| Average annual return: | -10.65% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $1,051.05 | ||||
As we can see, the two-decade investment result worked out poorly, with an annualized rate of return of -10.65%. This would have turned a $10K investment made 20 years ago into $1,051.05 today (as of 03/18/2020). On a total return basis, that’s a result of -89.49% (something to think about: how might ETFC shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Etrade Financial Corporation paid investors a total of $0.84/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 .56/share, we calculate that ETFC has a current yield of approximately 1.91%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .56 against the original $284.38/share purchase price. This works out to a yield on cost of 0.67%.
More investment wisdom to ponder:
“The right time for a company to finance its growth is not when it needs capital, but rather when the market is most receptive to providing capital.” — Michael Milken
