“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a two-decade holding period for an investor who was considering Altria Group Inc (NYSE: MO) back in 2001, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 01/08/2001 |
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| End date: | 01/06/2021 | ||||
| Start price/share: | $42.06 | ||||
| End price/share: | $41.42 | ||||
| Starting shares: | 237.74 | ||||
| Ending shares: | 2,998.38 | ||||
| Dividends reinvested/share: | $120.36 | ||||
| Total return: | 1,141.93% | ||||
| Average annual return: | 13.42% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $124,234.54 | ||||
The above analysis shows the two-decade investment result worked out quite well, with an annualized rate of return of 13.42%. This would have turned a $10K investment made 20 years ago into $124,234.54 today (as of 01/06/2021). On a total return basis, that’s a result of 1,141.93% (something to think about: how might MO shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Altria Group Inc paid investors a total of $120.36/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 3.44/share, we calculate that MO has a current yield of approximately 8.31%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.44 against the original $42.06/share purchase price. This works out to a yield on cost of 19.76%.
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
