“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a decade-long holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Marathon Oil Corp. (NYSE: MRO)? Today, we examine the outcome of a decade-long investment into the stock back in 2011.
| Start date: | 09/23/2011 |
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| End date: | 09/22/2021 | ||||
| Start price/share: | $22.06 | ||||
| End price/share: | $12.02 | ||||
| Starting shares: | 453.31 | ||||
| Ending shares: | 542.75 | ||||
| Dividends reinvested/share: | $4.03 | ||||
| Total return: | -34.76% | ||||
| Average annual return: | -4.18% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $6,523.19 | ||||
The above analysis shows the decade-long investment result worked out poorly, with an annualized rate of return of -4.18%. This would have turned a $10K investment made 10 years ago into $6,523.19 today (as of 09/22/2021). On a total return basis, that’s a result of -34.76% (something to think about: how might MRO shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Marathon Oil Corp. paid investors a total of $4.03/share in dividends over the 10 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 .2/share, we calculate that MRO has a current yield of approximately 1.66%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .2 against the original $22.06/share purchase price. This works out to a yield on cost of 7.52%.
Here’s one more great investment quote before you go:
“Only when the tide goes out do you discover who’s been swimming naked.” — Warren Buffett
