“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 twenty year holding period for an investor who was considering FMC Corp. (NYSE: FMC) back in 2001, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 05/29/2001 |
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| End date: | 05/26/2021 | ||||
| Start price/share: | $16.60 | ||||
| End price/share: | $115.40 | ||||
| Starting shares: | 602.41 | ||||
| Ending shares: | 1,322.89 | ||||
| Dividends reinvested/share: | $15.12 | ||||
| Total return: | 1,426.62% | ||||
| Average annual return: | 14.60% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $152,762.46 | ||||
The above analysis shows the twenty year investment result worked out quite well, with an annualized rate of return of 14.60%. This would have turned a $10K investment made 20 years ago into $152,762.46 today (as of 05/26/2021). On a total return basis, that’s a result of 1,426.62% (something to think about: how might FMC shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that FMC Corp. paid investors a total of $15.12/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 1.92/share, we calculate that FMC has a current yield of approximately 1.66%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.92 against the original $16.60/share purchase price. This works out to a yield on cost of 10.00%.
One more investment quote to leave you with:
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” — Robert Allen
