“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 CenturyLink Inc (NYSE: CTL)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.
| Start date: | 08/28/2000 |
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| End date: | 08/27/2020 | ||||
| Start price/share: | $28.69 | ||||
| End price/share: | $11.34 | ||||
| Starting shares: | 348.58 | ||||
| Ending shares: | 1,004.59 | ||||
| Dividends reinvested/share: | $29.84 | ||||
| Total return: | 13.92% | ||||
| Average annual return: | 0.65% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $11,384.30 | ||||
As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 0.65%. This would have turned a $10K investment made 20 years ago into $11,384.30 today (as of 08/27/2020). On a total return basis, that’s a result of 13.92% (something to think about: how might CTL shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that CenturyLink Inc paid investors a total of $29.84/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/share, we calculate that CTL has a current yield of approximately 8.82%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1 against the original $28.69/share purchase price. This works out to a yield on cost of 30.74%.
Another great investment quote to think about:
“Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic.” — Warren Buffett
