“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 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 Ford Motor Co. (NYSE: F)? Today, we examine the outcome of a twenty year investment into the stock back in 2001.
| Start date: | 07/16/2001 |
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| End date: | 07/15/2021 | ||||
| Start price/share: | $25.00 | ||||
| End price/share: | $14.01 | ||||
| Starting shares: | 400.00 | ||||
| Ending shares: | 714.51 | ||||
| Dividends reinvested/share: | $6.98 | ||||
| Total return: | 0.10% | ||||
| Average annual return: | 0.01% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $10,020.03 | ||||
As shown above, the twenty year investment result worked out as follows, with an annualized rate of return of 0.01%. This would have turned a $10K investment made 20 years ago into $10,020.03 today (as of 07/15/2021). On a total return basis, that’s a result of 0.10% (something to think about: how might F shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Ford Motor Co. paid investors a total of $6.98/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 .6/share, we calculate that F has a current yield of approximately 4.28%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .6 against the original $25.00/share purchase price. This works out to a yield on cost of 17.12%.
One more investment quote to leave you with:
“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.” — Warren Buffett
