“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 Eaton Corp plc (NYSE: ETN)? Today, we examine the outcome of a two-decade investment into the stock back in 2002.
| Start date: | 10/18/2002 |
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| End date: | 10/17/2022 | ||||
| Start price/share: | $17.18 | ||||
| End price/share: | $138.22 | ||||
| Starting shares: | 582.07 | ||||
| Ending shares: | 991.47 | ||||
| Dividends reinvested/share: | $31.63 | ||||
| Total return: | 1,270.41% | ||||
| Average annual return: | 13.98% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $137,150.01 | ||||
As we can see, the two-decade investment result worked out quite well, with an annualized rate of return of 13.98%. This would have turned a $10K investment made 20 years ago into $137,150.01 today (as of 10/17/2022). On a total return basis, that’s a result of 1,270.41% (something to think about: how might ETN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Beyond share price change, another component of ETN’s total return these past 20 years has been the payment by Eaton Corp plc of $31.63/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).
Based upon the most recent annualized dividend rate of 3.24/share, we calculate that ETN 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 3.24 against the original $17.18/share purchase price. This works out to a yield on cost of 13.62%.
Here’s one more great investment quote before you go:
“If you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don’t need extraordinary intelligence to succeed as an investor.” — Warren Buffett
