“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 eBay Inc. (NASD: EBAY) back in 2001, holding through to today.
| Start date: | 01/11/2001 |
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| End date: | 01/08/2021 | ||||
| Start price/share: | $4.31 | ||||
| End price/share: | $54.48 | ||||
| Starting shares: | 2,320.19 | ||||
| Ending shares: | 2,388.94 | ||||
| Dividends reinvested/share: | $1.20 | ||||
| Total return: | 1,201.50% | ||||
| Average annual return: | 13.69% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $130,241.88 | ||||
The above analysis shows the twenty year investment result worked out quite well, with an annualized rate of return of 13.69%. This would have turned a $10K investment made 20 years ago into $130,241.88 today (as of 01/08/2021). On a total return basis, that’s a result of 1,201.50% (something to think about: how might EBAY shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Beyond share price change, another component of EBAY’s total return these past 20 years has been the payment by eBay Inc. of $1.20/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).
Based upon the most recent annualized dividend rate of .64/share, we calculate that EBAY has a current yield of approximately 1.17%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .64 against the original $4.31/share purchase price. This works out to a yield on cost of 27.15%.
More investment wisdom to ponder:
“Finding the best person or the best organization to invest your money is one of the most important financial decisions you’ll ever make.” — Bill Gross
