“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 Pfizer Inc (NYSE: PFE)? Today, we examine the outcome of a twenty year investment into the stock back in 2002.
|Average annual return:||6.68%|
As we can see, the twenty year investment result worked out well, with an annualized rate of return of 6.68%. This would have turned a $10K investment made 20 years ago into $36,472.70 today (as of 08/01/2022). On a total return basis, that’s a result of 264.84% (something to think about: how might PFE shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Pfizer Inc paid investors a total of $20.62/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 1.6/share, we calculate that PFE has a current yield of approximately 3.16%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.6 against the original $29.32/share purchase price. This works out to a yield on cost of 10.78%.
More investment wisdom to ponder:
“Sometimes buying early on the way down looks like being wrong, but it isn’t.” — Seth Klarman