“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The investment philosophy practiced by Warren Buffett calls for investors to take a long-term horizon when making an investment, such as a twenty year holding period (or even longer), and reconsider making the investment in the first place if unable to envision holding the stock for at least five years. Today, we look at how such a long-term strategy would have done for investors in International Business Machines Corp (NYSE: IBM) back in 2000, holding through to today.
|Average annual return:||3.47%|
As shown above, the twenty year investment result worked out as follows, with an annualized rate of return of 3.47%. This would have turned a $10K investment made 20 years ago into $19,788.40 today (as of 12/02/2020). On a total return basis, that’s a result of 98.01% (something to think about: how might IBM 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 International Business Machines Corp has paid $62.10/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 6.52/share, we calculate that IBM has a current yield of approximately 5.23%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.52 against the original $98.38/share purchase price. This works out to a yield on cost of 5.32%.
One more piece of investment wisdom to leave you with:
“There’s a virtuous cycle when people have to defend challenges to their ideas. Any gaps in thinking or analysis become clear pretty quickly when smart people ask good, logical questions.” — Joel Greenblatt