“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 The Charles Schwab Corporation (NYSE: SCHW)? Today, we examine the outcome of a twenty year investment into the stock back in 2000.
| Start date: | 05/26/2000 |
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| End date: | 05/22/2020 | ||||
| Start price/share: | $37.00 | ||||
| End price/share: | $32.83 | ||||
| Starting shares: | 270.27 | ||||
| Ending shares: | 345.50 | ||||
| Dividends reinvested/share: | $5.60 | ||||
| Total return: | 13.43% | ||||
| Average annual return: | 0.63% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $11,338.53 | ||||
As we can see, the twenty year investment result worked out as follows, with an annualized rate of return of 0.63%. This would have turned a $10K investment made 20 years ago into $11,338.53 today (as of 05/22/2020). On a total return basis, that’s a result of 13.43% (something to think about: how might SCHW shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that The Charles Schwab Corporation paid investors a total of $5.60/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 .72/share, we calculate that SCHW has a current yield of approximately 2.19%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .72 against the original $37.00/share purchase price. This works out to a yield on cost of 5.92%.
One more investment quote to leave you with:
“Searching for companies is like looking for grubs under rocks: if you turn over 10 rocks you’ll likely find one grub; if you turn over 20 rocks you’ll find two.” — Peter Lynch
