“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.
| Start date: | 08/02/2002 |
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| End date: | 08/01/2022 | ||||
| Start price/share: | $29.32 | ||||
| End price/share: | $50.61 | ||||
| Starting shares: | 341.06 | ||||
| Ending shares: | 720.89 | ||||
| Dividends reinvested/share: | $20.62 | ||||
| Total return: | 264.84% | ||||
| Average annual return: | 6.68% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $36,472.70 | ||||
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
