“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 twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Chevron Corporation (NYSE: CVX)? Today, we examine the outcome of a twenty year investment into the stock back in 2002.
| Start date: | 01/04/2002 |
|
|||
| End date: | 01/03/2022 | ||||
| Start price/share: | $44.65 | ||||
| End price/share: | $119.26 | ||||
| Starting shares: | 223.96 | ||||
| Ending shares: | 472.98 | ||||
| Dividends reinvested/share: | $65.72 | ||||
| Total return: | 464.08% | ||||
| Average annual return: | 9.03% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $56,406.83 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 9.03%. This would have turned a $10K investment made 20 years ago into $56,406.83 today (as of 01/03/2022). On a total return basis, that’s a result of 464.08% (something to think about: how might CVX shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Chevron Corporation paid investors a total of $65.72/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 5.36/share, we calculate that CVX has a current yield of approximately 4.49%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.36 against the original $44.65/share purchase price. This works out to a yield on cost of 10.06%.
Another great investment quote to think about:
“The most important three words in investing is: “I don’t know.†If someone doesn’t say that to you then they are lying.” — James Altucher
