“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 Exxon Mobil Corp (NYSE: XOM)? Today, we examine the outcome of a twenty year investment into the stock back in 2000.
| Start date: | 07/03/2000 |
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| End date: | 07/01/2020 | ||||
| Start price/share: | $39.77 | ||||
| End price/share: | $43.71 | ||||
| Starting shares: | 251.45 | ||||
| Ending shares: | 442.34 | ||||
| Dividends reinvested/share: | $39.55 | ||||
| Total return: | 93.35% | ||||
| Average annual return: | 3.35% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $19,334.25 | ||||
As shown above, the twenty year investment result worked out as follows, with an annualized rate of return of 3.35%. This would have turned a $10K investment made 20 years ago into $19,334.25 today (as of 07/01/2020). On a total return basis, that’s a result of 93.35% (something to think about: how might XOM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Exxon Mobil Corp paid investors a total of $39.55/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 3.48/share, we calculate that XOM has a current yield of approximately 7.96%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.48 against the original $39.77/share purchase price. This works out to a yield on cost of 20.02%.
More investment wisdom to ponder:
“A 10% decline in the market is fairly common, it happens about once a year. Investors who realize this are less likely to sell in a panic, and more likely to remain invested, benefitting from the wealthbuilding power of stocks.” — Christopher Davis
