“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 American Express Co. (NYSE: AXP)? Today, we examine the outcome of a twenty year investment into the stock back in 2001.
| Start date: | 07/20/2001 |
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| End date: | 07/19/2021 | ||||
| Start price/share: | $33.24 | ||||
| End price/share: | $162.81 | ||||
| Starting shares: | 300.84 | ||||
| Ending shares: | 400.06 | ||||
| Dividends reinvested/share: | $17.76 | ||||
| Total return: | 551.33% | ||||
| Average annual return: | 9.82% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $65,174.04 | ||||
As we can see, the twenty year investment result worked out well, with an annualized rate of return of 9.82%. This would have turned a $10K investment made 20 years ago into $65,174.04 today (as of 07/19/2021). On a total return basis, that’s a result of 551.33% (something to think about: how might AXP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that American Express Co. paid investors a total of $17.76/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 1.72/share, we calculate that AXP has a current yield of approximately 1.06%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.72 against the original $33.24/share purchase price. This works out to a yield on cost of 3.19%.
One more investment quote to leave you with:
“You can’t restate a dividend.” — Malon Wilkus
