“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 Yum! Brands Inc (NYSE: YUM)? Today, we examine the outcome of a twenty year investment into the stock back in 2002.
| Start date: | 12/23/2002 |
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| End date: | 12/21/2022 | ||||
| Start price/share: | $8.44 | ||||
| End price/share: | $128.78 | ||||
| Starting shares: | 1,184.83 | ||||
| Ending shares: | 1,659.04 | ||||
| Dividends reinvested/share: | $19.21 | ||||
| Total return: | 2,036.52% | ||||
| Average annual return: | 16.54% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $213,819.17 | ||||
The above analysis shows the twenty year investment result worked out exceptionally well, with an annualized rate of return of 16.54%. This would have turned a $10K investment made 20 years ago into $213,819.17 today (as of 12/21/2022). On a total return basis, that’s a result of 2,036.52% (something to think about: how might YUM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Yum! Brands Inc paid investors a total of $19.21/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 2.28/share, we calculate that YUM has a current yield of approximately 1.77%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.28 against the original $8.44/share purchase price. This works out to a yield on cost of 20.97%.
More investment wisdom to ponder:
“Although it’s easy to forget sometimes, a share is not a lottery ticket… it’s part-ownership of a business.” — Peter Lynch
