“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a decade-long holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Exxon Mobil Corp (NYSE: XOM)? Today, we examine the outcome of a decade-long investment into the stock back in 2011.
| Start date: | 02/25/2011 |
|
|||
| End date: | 02/24/2021 | ||||
| Start price/share: | $85.34 | ||||
| End price/share: | $56.70 | ||||
| Starting shares: | 117.18 | ||||
| Ending shares: | 172.46 | ||||
| Dividends reinvested/share: | $28.68 | ||||
| Total return: | -2.22% | ||||
| Average annual return: | -0.22% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $9,782.05 | ||||
As shown above, the decade-long investment result worked out poorly, with an annualized rate of return of -0.22%. This would have turned a $10K investment made 10 years ago into $9,782.05 today (as of 02/24/2021). On a total return basis, that’s a result of -2.22% (something to think about: how might XOM shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Exxon Mobil Corp paid investors a total of $28.68/share in dividends over the 10 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 3.48/share, we calculate that XOM has a current yield of approximately 6.14%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.48 against the original $85.34/share purchase price. This works out to a yield on cost of 7.19%.
One more piece of investment wisdom to leave you with:
“Games are won by players who focus on the playing field, not by those whose eyes are glued to the scoreboard.” — Warren Buffett
