“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 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 Bank of New York Mellon Corp (NYSE: BK)? Today, we examine the outcome of a twenty year investment into the stock back in 2000.
| Start date: | 08/25/2000 |
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| End date: | 08/24/2020 | ||||
| Start price/share: | $53.60 | ||||
| End price/share: | $36.40 | ||||
| Starting shares: | 186.57 | ||||
| Ending shares: | 284.28 | ||||
| Dividends reinvested/share: | $15.33 | ||||
| Total return: | 3.48% | ||||
| Average annual return: | 0.17% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $10,345.74 | ||||
As shown above, the twenty year investment result worked out as follows, with an annualized rate of return of 0.17%. This would have turned a $10K investment made 20 years ago into $10,345.74 today (as of 08/24/2020). On a total return basis, that’s a result of 3.48% (something to think about: how might BK shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Bank of New York Mellon Corp paid investors a total of $15.33/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 1.24/share, we calculate that BK has a current yield of approximately 3.41%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.24 against the original $53.60/share purchase price. This works out to a yield on cost of 6.36%.
One more investment quote to leave you with:
“October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” — Mark Twain
