“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 Ford Motor Co. (NYSE: F)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.
| Start date: | 08/03/2000 |
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| End date: | 04/27/2020 | ||||
| Start price/share: | $29.25 | ||||
| End price/share: | $5.17 | ||||
| Starting shares: | 341.88 | ||||
| Ending shares: | 630.58 | ||||
| Dividends reinvested/share: | $7.88 | ||||
| Total return: | -67.40% | ||||
| Average annual return: | -5.52% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $3,258.97 | ||||
The above analysis shows the two-decade investment result worked out poorly, with an annualized rate of return of -5.52%. This would have turned a $10K investment made 20 years ago into $3,258.97 today (as of 04/27/2020). On a total return basis, that’s a result of -67.40% (something to think about: how might F shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Ford Motor Co. paid investors a total of $7.88/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 F has a current yield of approximately 11.61%. 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 $29.25/share purchase price. This works out to a yield on cost of 39.69%.
More investment wisdom to ponder:
“Games are won by players who focus on the playing field, not by those whose eyes are glued to the scoreboard.” — Warren Buffett
