“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 two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Apache Corp (NASD: APA)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.
| Start date: | 12/29/2000 |
|
|||
| End date: | 12/28/2020 | ||||
| Start price/share: | $30.33 | ||||
| End price/share: | $14.21 | ||||
| Starting shares: | 329.71 | ||||
| Ending shares: | 415.07 | ||||
| Dividends reinvested/share: | $12.31 | ||||
| Total return: | -41.02% | ||||
| Average annual return: | -2.60% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $5,902.74 | ||||
As we can see, the two-decade investment result worked out poorly, with an annualized rate of return of -2.60%. This would have turned a $10K investment made 20 years ago into $5,902.74 today (as of 12/28/2020). On a total return basis, that’s a result of -41.02% (something to think about: how might APA shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 20 years, Apache Corp has paid $12.31/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of .1/share, we calculate that APA has a current yield of approximately 0.70%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .1 against the original $30.33/share purchase price. This works out to a yield on cost of 2.31%.
Here’s one more great investment quote before you go:
“Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.” — Seth Klarman
