“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 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 PPL Corp (NYSE: PPL)? Today, we examine the outcome of a two-decade investment into the stock back in 2002.
|Average annual return:||7.75%|
As we can see, the two-decade investment result worked out well, with an annualized rate of return of 7.75%. This would have turned a $10K investment made 20 years ago into $44,534.94 today (as of 08/11/2022). On a total return basis, that’s a result of 345.56% (something to think about: how might PPL shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PPL Corp paid investors a total of $25.96/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 .9/share, we calculate that PPL has a current yield of approximately 3.06%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .9 against the original $16.19/share purchase price. This works out to a yield on cost of 18.90%.
One more piece of investment wisdom to leave you with:
“Investors should purchase stocks like they purchase groceries, not like they purchase perfume.” — Benjamin Graham