“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 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 Pfizer Inc (NYSE: PFE)? Today, we examine the outcome of a two-decade investment into the stock back in 2001.
| Start date: | 07/06/2001 |
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| End date: | 07/02/2021 | ||||
| Start price/share: | $38.00 | ||||
| End price/share: | $39.73 | ||||
| Starting shares: | 263.16 | ||||
| Ending shares: | 540.23 | ||||
| Dividends reinvested/share: | $19.09 | ||||
| Total return: | 114.63% | ||||
| Average annual return: | 3.89% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $21,454.60 | ||||
The above analysis shows the two-decade investment result worked out as follows, with an annualized rate of return of 3.89%. This would have turned a $10K investment made 20 years ago into $21,454.60 today (as of 07/02/2021). On a total return basis, that’s a result of 114.63% (something to think about: how might PFE shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Pfizer Inc paid investors a total of $19.09/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 1.56/share, we calculate that PFE has a current yield of approximately 3.93%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.56 against the original $38.00/share purchase price. This works out to a yield on cost of 10.34%.
Another great investment quote to think about:
“When you sell in desperation, you always sell cheap.” — Peter Lynch
