“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 Interpublic Group of Companies Inc. (NYSE: IPG)? Today, we examine the outcome of a two-decade investment into the stock back in 2001.
| Start date: | 05/07/2001 |
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| End date: | 05/04/2021 | ||||
| Start price/share: | $35.00 | ||||
| End price/share: | $32.58 | ||||
| Starting shares: | 285.71 | ||||
| Ending shares: | 399.80 | ||||
| Dividends reinvested/share: | $6.70 | ||||
| Total return: | 30.26% | ||||
| Average annual return: | 1.33% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $13,025.44 | ||||
As we can see, the two-decade investment result worked out as follows, with an annualized rate of return of 1.33%. This would have turned a $10K investment made 20 years ago into $13,025.44 today (as of 05/04/2021). On a total return basis, that’s a result of 30.26% (something to think about: how might IPG shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Interpublic Group of Companies Inc. paid investors a total of $6.70/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 1.08/share, we calculate that IPG has a current yield of approximately 3.31%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.08 against the original $35.00/share purchase price. This works out to a yield on cost of 9.46%.
Here’s one more great investment quote before you go:
“If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.” — Peter Lynch
