“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 Merck & Co Inc (NYSE: MRK)? Today, we examine the outcome of a two-decade investment into the stock back in 2001.
| Start date: | 04/16/2001 |
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| End date: | 04/15/2021 | ||||
| Start price/share: | $79.10 | ||||
| End price/share: | $76.66 | ||||
| Starting shares: | 126.42 | ||||
| Ending shares: | 269.45 | ||||
| Dividends reinvested/share: | $36.72 | ||||
| Total return: | 106.56% | ||||
| Average annual return: | 3.69% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $20,649.52 | ||||
As we can see, the two-decade investment result worked out as follows, with an annualized rate of return of 3.69%. This would have turned a $10K investment made 20 years ago into $20,649.52 today (as of 04/15/2021). On a total return basis, that’s a result of 106.56% (something to think about: how might MRK shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Merck & Co Inc paid investors a total of $36.72/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 2.6/share, we calculate that MRK has a current yield of approximately 3.39%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.6 against the original $79.10/share purchase price. This works out to a yield on cost of 4.29%.
One more piece of investment wisdom to leave you with:
“Every day that you’re not selling an asset in your portfolio, you’re choosing to buy it.” — Sam Zell
