“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 Tyson Foods Inc (NYSE: TSN) 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: | 11/17/2000 |
|
|||
| End date: | 11/16/2020 | ||||
| Start price/share: | $12.25 | ||||
| End price/share: | $64.74 | ||||
| Starting shares: | 816.33 | ||||
| Ending shares: | 1,051.25 | ||||
| Dividends reinvested/share: | $8.80 | ||||
| Total return: | 580.58% | ||||
| Average annual return: | 10.06% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $68,084.21 | ||||
The above analysis shows the two-decade investment result worked out quite well, with an annualized rate of return of 10.06%. This would have turned a $10K investment made 20 years ago into $68,084.21 today (as of 11/16/2020). On a total return basis, that’s a result of 580.58% (something to think about: how might TSN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Tyson Foods Inc paid investors a total of $8.80/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 1.68/share, we calculate that TSN has a current yield of approximately 2.59%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.68 against the original $12.25/share purchase price. This works out to a yield on cost of 21.14%.
Here’s one more great investment quote before you go:
“All intelligent investing is value investing: acquiring more that you are paying for. You must value the business in order to value the stock.” — Charlie Munger
