“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 American Express Co. (NYSE: AXP)? Today, we examine the outcome of a two-decade investment into the stock back in 2002.
| Start date: | 03/25/2002 |
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| End date: | 03/24/2022 | ||||
| Start price/share: | $35.34 | ||||
| End price/share: | $188.89 | ||||
| Starting shares: | 282.97 | ||||
| Ending shares: | 376.31 | ||||
| Dividends reinvested/share: | $18.48 | ||||
| Total return: | 610.80% | ||||
| Average annual return: | 10.30% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $71,098.46 | ||||
As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 10.30%. This would have turned a $10K investment made 20 years ago into $71,098.46 today (as of 03/24/2022). On a total return basis, that’s a result of 610.80% (something to think about: how might AXP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that American Express Co. paid investors a total of $18.48/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 2.08/share, we calculate that AXP has a current yield of approximately 1.10%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.08 against the original $35.34/share purchase price. This works out to a yield on cost of 3.11%.
More investment wisdom to ponder:
“A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.” — Benjamin Graham
