“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 Ford Motor Co. (NYSE: F)? 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: | 03/22/2022 | ||||
| Start price/share: | $16.05 | ||||
| End price/share: | $17.09 | ||||
| Starting shares: | 623.05 | ||||
| Ending shares: | 1,093.49 | ||||
| Dividends reinvested/share: | $6.63 | ||||
| Total return: | 86.88% | ||||
| Average annual return: | 3.18% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $18,704.57 | ||||
As we can see, the two-decade investment result worked out as follows, with an annualized rate of return of 3.18%. This would have turned a $10K investment made 20 years ago into $18,704.57 today (as of 03/22/2022). On a total return basis, that’s a result of 86.88% (something to think about: how might F shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Ford Motor Co. paid investors a total of $6.63/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 .4/share, we calculate that F has a current yield of approximately 2.34%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .4 against the original $16.05/share purchase price. This works out to a yield on cost of 14.58%.
More investment wisdom to ponder:
“If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.” — Peter Lynch
