“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 Wells Fargo & Co (NYSE: WFC)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.
| Start date: | 12/22/2000 |
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| End date: | 12/21/2020 | ||||
| Start price/share: | $26.97 | ||||
| End price/share: | $29.55 | ||||
| Starting shares: | 370.78 | ||||
| Ending shares: | 657.01 | ||||
| Dividends reinvested/share: | $21.15 | ||||
| Total return: | 94.15% | ||||
| Average annual return: | 3.37% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $19,411.01 | ||||
The above analysis shows the two-decade investment result worked out as follows, with an annualized rate of return of 3.37%. This would have turned a $10K investment made 20 years ago into $19,411.01 today (as of 12/21/2020). On a total return basis, that’s a result of 94.15% (something to think about: how might WFC shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Wells Fargo & Co paid investors a total of $21.15/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 .4/share, we calculate that WFC has a current yield of approximately 1.35%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .4 against the original $26.97/share purchase price. This works out to a yield on cost of 5.01%.
Here’s one more great investment quote before you go:
“As long as you enjoy investing, you’ll be willing to do the homework and stay in the game.” — Jim Cramer
