“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 International Paper Co (NYSE: IP)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.
| Start date: | 06/19/2000 |
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| End date: | 06/16/2020 | ||||
| Start price/share: | $31.56 | ||||
| End price/share: | $35.71 | ||||
| Starting shares: | 316.86 | ||||
| Ending shares: | 606.09 | ||||
| Dividends reinvested/share: | $24.06 | ||||
| Total return: | 116.43% | ||||
| Average annual return: | 3.93% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $21,622.72 | ||||
As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 3.93%. This would have turned a $10K investment made 20 years ago into $21,622.72 today (as of 06/16/2020). On a total return basis, that’s a result of 116.43% (something to think about: how might IP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that International Paper Co paid investors a total of $24.06/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 2.05/share, we calculate that IP has a current yield of approximately 5.74%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.05 against the original $31.56/share purchase price. This works out to a yield on cost of 18.19%.
One more piece of investment wisdom to leave you with:
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.” — Warren Buffett
