“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
A critical pearl of wisdom from Warren Buffett teaches us that with any potential stock investment we may make, as soon as our buy order is filled we will have a choice: to remain a co-owner of that company for the long haul, or to react to the inevitable short-term ups and downs that the stock market is famous for (sometimes sharp ups and downs).
The reality of this choice forces us to challenge our confidence in any given company we might invest into, and keep our eyes on the long-term time horizon. The market may go up and down the interim, but over a two-decade holding period, will the investment succeed?
Back in 2000, investors may have been asking themselves that very question about FedEx Corp (NYSE: FDX). Let’s examine what would have happened over a two-decade holding period, had you invested in FDX shares back in 2000 and held on.
|Average annual return:||10.12%|
As we can see, the two-decade investment result worked out quite well, with an annualized rate of return of 10.12%. This would have turned a $10K investment made 20 years ago into $68,812.63 today (as of 11/18/2020). On a total return basis, that’s a result of 588.13% (something to think about: how might FDX shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Dividends are always an important investment factor to consider, and FedEx Corp has paid $16.72/share in dividends to shareholders over the past 20 years we looked at above. Many an investor will only invest in stocks that pay dividends, so this component of total return is always an important consideration. Automated reinvestment of dividends into additional shares of stock can be a great way for an investor to compound their returns. The above calculations are done with the assuption that dividends received over time are reinvested (the calcuations use the closing price on ex-date).
Based upon the most recent annualized dividend rate of 2.6/share, we calculate that FDX has a current yield of approximately 0.92%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.6 against the original $46.50/share purchase price. This works out to a yield on cost of 1.98%.
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