“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty year 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 twenty year investment into the stock back in 2001.
| Start date: | 06/11/2001 |
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| End date: | 06/09/2021 | ||||
| Start price/share: | $44.85 | ||||
| End price/share: | $62.65 | ||||
| Starting shares: | 222.97 | ||||
| Ending shares: | 413.92 | ||||
| Dividends reinvested/share: | $42.15 | ||||
| Total return: | 159.32% | ||||
| Average annual return: | 4.88% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $25,943.21 | ||||
As shown above, the twenty year investment result worked out as follows, with an annualized rate of return of 4.88%. This would have turned a $10K investment made 20 years ago into $25,943.21 today (as of 06/09/2021). On a total return basis, that’s a result of 159.32% (something to think about: how might XOM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Exxon Mobil Corp paid investors a total of $42.15/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 3.48/share, we calculate that XOM has a current yield of approximately 5.55%. 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 $44.85/share purchase price. This works out to a yield on cost of 12.37%.
Another great investment quote to think about:
“Markets can remain irrational longer than you can remain solvent.” — John Maynard Keynes
