“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 two-decade 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 2001, holding through to today.
|Average annual return:||3.19%|
As we can see, the two-decade investment result worked out as follows, with an annualized rate of return of 3.19%. This would have turned a $10K investment made 20 years ago into $18,744.09 today (as of 01/20/2021). On a total return basis, that’s a result of 87.29% (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.]
Many investors out there refuse to own any stock that lacks a dividend; in the case of International Business Machines Corp, investors have received $62.10/share in dividends these past 20 years examined in the exercise above. This means total return was driven not just by share price, but also by the dividends received (and what the investor did with those dividends). For this exercise, what we’ve done with the dividends is to assume they are reinvestted — i.e. used to purchase additional shares (the calculations use 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 5.01%. 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 $108.56/share purchase price. This works out to a yield on cost of 4.61%.
One more investment quote to leave you with:
“Every once in a while, the market does something so stupid it takes your breath away.” — Jim Cramer