“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Franklin Resources Inc (NYSE: BEN) back in 2000: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 08/21/2000 |
|
|||
| End date: | 08/19/2020 | ||||
| Start price/share: | $11.94 | ||||
| End price/share: | $21.67 | ||||
| Starting shares: | 837.52 | ||||
| Ending shares: | 1,287.95 | ||||
| Dividends reinvested/share: | $14.02 | ||||
| Total return: | 179.10% | ||||
| Average annual return: | 5.26% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $27,890.11 | ||||
As shown above, the two-decade investment result worked out well, with an annualized rate of return of 5.26%. This would have turned a $10K investment made 20 years ago into $27,890.11 today (as of 08/19/2020). On a total return basis, that’s a result of 179.10% (something to think about: how might BEN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Franklin Resources Inc paid investors a total of $14.02/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 1.08/share, we calculate that BEN has a current yield of approximately 4.98%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.08 against the original $11.94/share purchase price. This works out to a yield on cost of 41.71%.
More investment wisdom to ponder:
“When I was young I thought that money was the most important thing in life; now that I am old I know that it is.” — Oscar Wilde
