“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 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 Baker Hughes Company (NASD: BKR)? Today, we examine the outcome of a twenty year investment into the stock back in 2002.
| Start date: | 04/18/2002 |
|
|||
| End date: | 04/14/2022 | ||||
| Start price/share: | $37.17 | ||||
| End price/share: | $37.29 | ||||
| Starting shares: | 269.03 | ||||
| Ending shares: | 371.14 | ||||
| Dividends reinvested/share: | $12.09 | ||||
| Total return: | 38.40% | ||||
| Average annual return: | 1.64% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $13,845.62 | ||||
As shown above, the twenty year investment result worked out as follows, with an annualized rate of return of 1.64%. This would have turned a $10K investment made 20 years ago into $13,845.62 today (as of 04/14/2022). On a total return basis, that’s a result of 38.40% (something to think about: how might BKR shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Baker Hughes Company paid investors a total of $12.09/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 .72/share, we calculate that BKR has a current yield of approximately 1.93%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .72 against the original $37.17/share purchase price. This works out to a yield on cost of 5.19%.
Here’s one more great investment quote before you go:
“Never is there a better time to buy a stock than when a basically sound company, for whatever reason, temporarily falls out of favor with the investment community.” — Geraldine Weiss
