“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a two-decade period?
Today, let’s look backwards in time to 2001, and take a look at what happened to investors who asked that very question about BorgWarner Inc (NYSE: BWA), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 06/08/2001 |
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| End date: | 06/07/2021 | ||||
| Start price/share: | $5.87 | ||||
| End price/share: | $53.11 | ||||
| Starting shares: | 1,703.58 | ||||
| Ending shares: | 2,077.78 | ||||
| Dividends reinvested/share: | $5.80 | ||||
| Total return: | 1,003.51% | ||||
| Average annual return: | 12.75% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $110,382.99 | ||||
As we can see, the two-decade investment result worked out quite well, with an annualized rate of return of 12.75%. This would have turned a $10K investment made 20 years ago into $110,382.99 today (as of 06/07/2021). On a total return basis, that’s a result of 1,003.51% (something to think about: how might BWA shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that BorgWarner Inc paid investors a total of $5.80/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 .68/share, we calculate that BWA has a current yield of approximately 1.28%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .68 against the original $5.87/share purchase price. This works out to a yield on cost of 21.81%.
Here’s one more great investment quote before you go:
“Successful investing is anticipating the anticipations of others.” — John Maynard Keynes
