“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 Williams Cos Inc (NYSE: WMB)? Today, we examine the outcome of a twenty year investment into the stock back in 2000.
| Start date: | 11/13/2000 |
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| End date: | 11/11/2020 | ||||
| Start price/share: | $30.68 | ||||
| End price/share: | $20.02 | ||||
| Starting shares: | 325.95 | ||||
| Ending shares: | 661.17 | ||||
| Dividends reinvested/share: | $17.80 | ||||
| Total return: | 32.37% | ||||
| Average annual return: | 1.41% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $13,233.22 | ||||
As we can see, the twenty year investment result worked out as follows, with an annualized rate of return of 1.41%. This would have turned a $10K investment made 20 years ago into $13,233.22 today (as of 11/11/2020). On a total return basis, that’s a result of 32.37% (something to think about: how might WMB shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Williams Cos Inc paid investors a total of $17.80/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 1.6/share, we calculate that WMB has a current yield of approximately 7.99%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.6 against the original $30.68/share purchase price. This works out to a yield on cost of 26.04%.
Here’s one more great investment quote before you go:
“History provides a crucial insight regarding market crises: they are inevitable, painful and ultimately surmountable.” — Shelby Davis
