“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 Textron Inc (NYSE: TXT)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.
| Start date: | 03/06/2000 |
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| End date: | 03/05/2020 | ||||
| Start price/share: | $28.84 | ||||
| End price/share: | $37.17 | ||||
| Starting shares: | 346.74 | ||||
| Ending shares: | 444.92 | ||||
| Dividends reinvested/share: | $7.39 | ||||
| Total return: | 65.38% | ||||
| Average annual return: | 2.55% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $16,551.34 | ||||
The above analysis shows the two-decade investment result worked out as follows, with an annualized rate of return of 2.55%. This would have turned a $10K investment made 20 years ago into $16,551.34 today (as of 03/05/2020). On a total return basis, that’s a result of 65.38% (something to think about: how might TXT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Textron Inc paid investors a total of $7.39/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 .08/share, we calculate that TXT has a current yield of approximately 0.22%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .08 against the original $28.84/share purchase price. This works out to a yield on cost of 0.76%.
Here’s one more great investment quote before you go:
“The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.” — Warren Buffett
