“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: | 03/10/2000 |
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| End date: | 03/09/2020 | ||||
| Start price/share: | $10.09 | ||||
| End price/share: | $17.88 | ||||
| Starting shares: | 991.08 | ||||
| Ending shares: | 1,053.04 | ||||
| Dividends reinvested/share: | $1.64 | ||||
| Total return: | 88.28% | ||||
| Average annual return: | 3.21% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $18,816.91 | ||||
The above analysis shows the twenty year investment result worked out as follows, with an annualized rate of return of 3.21%. This would have turned a $10K investment made 20 years ago into $18,816.91 today (as of 03/09/2020). On a total return basis, that’s a result of 88.28% (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 $1.64/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 .6/share, we calculate that MGM has a current yield of approximately 3.36%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .6 against the original $10.09/share purchase price. This works out to a yield on cost of 33.30%.
Here’s one more great investment quote before you go:
“All intelligent investing is value investing: acquiring more that you are paying for. You must value the business in order to value the stock.” — Charlie Munger
