“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 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 Exxon Mobil Corp (NYSE: XOM)? Today, we examine the outcome of a two-decade investment into the stock back in 2001.
| Start date: | 10/22/2001 |
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| End date: | 10/20/2021 | ||||
| Start price/share: | $41.12 | ||||
| End price/share: | $63.85 | ||||
| Starting shares: | 243.19 | ||||
| Ending shares: | 455.76 | ||||
| Dividends reinvested/share: | $42.79 | ||||
| Total return: | 191.00% | ||||
| Average annual return: | 5.48% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $29,079.90 | ||||
As we can see, the two-decade investment result worked out well, with an annualized rate of return of 5.48%. This would have turned a $10K investment made 20 years ago into $29,079.90 today (as of 10/20/2021). On a total return basis, that’s a result of 191.00% (something to think about: how might XOM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Exxon Mobil Corp paid investors a total of $42.79/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 3.48/share, we calculate that XOM has a current yield of approximately 5.45%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.48 against the original $41.12/share purchase price. This works out to a yield on cost of 13.25%.
Another great investment quote to think about:
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” — Warren Buffett
