“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a twenty year period?
Today, let’s look backwards in time to 2002, and take a look at what happened to investors who asked that very question about Pfizer Inc (NYSE: PFE), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 12/19/2002 |
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| End date: | 12/16/2022 | ||||
| Start price/share: | $28.56 | ||||
| End price/share: | $51.40 | ||||
| Starting shares: | 350.14 | ||||
| Ending shares: | 740.56 | ||||
| Dividends reinvested/share: | $20.77 | ||||
| Total return: | 280.65% | ||||
| Average annual return: | 6.91% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $38,064.98 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 6.91%. This would have turned a $10K investment made 20 years ago into $38,064.98 today (as of 12/16/2022). On a total return basis, that’s a result of 280.65% (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 $20.77/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 1.64/share, we calculate that PFE has a current yield of approximately 3.19%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.64 against the original $28.56/share purchase price. This works out to a yield on cost of 11.17%.
One more piece of investment wisdom to leave you with:
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” — Robert Allen
