“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 Yum! Brands Inc (NYSE: YUM), by taking a look at the investment outcome over a two-decade holding period.
|Average annual return:||17.40%|
The above analysis shows the two-decade investment result worked out exceptionally well, with an annualized rate of return of 17.40%. This would have turned a $10K investment made 20 years ago into $247,813.76 today (as of 09/20/2021). On a total return basis, that’s a result of 2,380.01% (something to think about: how might YUM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 20 years, Yum! Brands Inc has paid $16.43/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 2/share, we calculate that YUM has a current yield of approximately 1.59%. 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 $6.93/share purchase price. This works out to a yield on cost of 22.94%.
One more investment quote to leave you with:
“If you’re looking for a home run, a great investment for five years or 10 years or more, then the only way to beat this enormous fog that covers the future is to identify a long-term trend that will give a particular business some sort of edge.” — Ralph Wanger