“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 Williams Cos Inc (NYSE: WMB)? Today, we examine the outcome of a twenty year investment into the stock back in 2000.
| Start date: | 05/15/2000 |
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| End date: | 05/12/2020 | ||||
| Start price/share: | $29.98 | ||||
| End price/share: | $19.08 | ||||
| Starting shares: | 333.56 | ||||
| Ending shares: | 653.65 | ||||
| Dividends reinvested/share: | $17.23 | ||||
| Total return: | 24.72% | ||||
| Average annual return: | 1.11% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,471.21 | ||||
As we can see, the twenty year investment result worked out as follows, with an annualized rate of return of 1.11%. This would have turned a $10K investment made 20 years ago into $12,471.21 today (as of 05/12/2020). On a total return basis, that’s a result of 24.72% (something to think about: how might WMB shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Williams Cos Inc paid investors a total of $17.23/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 1.6/share, we calculate that WMB has a current yield of approximately 8.39%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.6 against the original $29.98/share purchase price. This works out to a yield on cost of 27.99%.
Here’s one more great investment quote before you go:
“The four most dangerous words in investing are: ‘this time it’s different.'” — Sir John Templeton
