Photo credit: commons.wikimedia.org

“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
$10,000

10/22/2001
$29,079

10/20/2021
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