“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 Analog Devices Inc (NASD: ADI)? Today, we examine the outcome of a two-decade investment into the stock back in 2002.
| Start date: | 10/31/2002 |
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| End date: | 10/28/2022 | ||||
| Start price/share: | $26.80 | ||||
| End price/share: | $144.88 | ||||
| Starting shares: | 373.13 | ||||
| Ending shares: | 573.09 | ||||
| Dividends reinvested/share: | $26.07 | ||||
| Total return: | 730.30% | ||||
| Average annual return: | 11.16% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $83,003.55 | ||||
As we can see, the two-decade investment result worked out quite well, with an annualized rate of return of 11.16%. This would have turned a $10K investment made 20 years ago into $83,003.55 today (as of 10/28/2022). On a total return basis, that’s a result of 730.30% (something to think about: how might ADI shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Analog Devices Inc paid investors a total of $26.07/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 3.04/share, we calculate that ADI has a current yield of approximately 2.10%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.04 against the original $26.80/share purchase price. This works out to a yield on cost of 7.84%.
More investment wisdom to ponder:
“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” — Warren Buffett
