“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 Exelon Corp (NASD: EXC)? Today, we examine the outcome of a two-decade investment into the stock back in 2001.
| Start date: | 02/26/2001 |
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| End date: | 02/23/2021 | ||||
| Start price/share: | $32.53 | ||||
| End price/share: | $40.80 | ||||
| Starting shares: | 307.41 | ||||
| Ending shares: | 643.76 | ||||
| Dividends reinvested/share: | $29.99 | ||||
| Total return: | 162.65% | ||||
| Average annual return: | 4.95% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $26,288.38 | ||||
The above analysis shows the two-decade investment result worked out as follows, with an annualized rate of return of 4.95%. This would have turned a $10K investment made 20 years ago into $26,288.38 today (as of 02/23/2021). On a total return basis, that’s a result of 162.65% (something to think about: how might EXC shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Exelon Corp paid investors a total of $29.99/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 1.53/share, we calculate that EXC has a current yield of approximately 3.75%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.53 against the original $32.53/share purchase price. This works out to a yield on cost of 11.53%.
One more piece of investment wisdom to leave you with:
“If you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don’t need extraordinary intelligence to succeed as an investor.” — Warren Buffett
