“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 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 Carnival Corp (NYSE: CCL)? Today, we examine the outcome of a twenty year investment into the stock back in 2003.
| Start date: | 01/06/2003 |
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| End date: | 01/04/2023 | ||||
| Start price/share: | $25.76 | ||||
| End price/share: | $8.74 | ||||
| Starting shares: | 388.20 | ||||
| Ending shares: | 604.99 | ||||
| Dividends reinvested/share: | $19.16 | ||||
| Total return: | -47.12% | ||||
| Average annual return: | -3.13% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $5,292.64 | ||||
The above analysis shows the twenty year investment result worked out poorly, with an annualized rate of return of -3.13%. This would have turned a $10K investment made 20 years ago into $5,292.64 today (as of 01/04/2023). On a total return basis, that’s a result of -47.12% (something to think about: how might CCL shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Carnival Corp paid investors a total of $19.16/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/share, we calculate that CCL has a current yield of approximately 22.88%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $25.76/share purchase price. This works out to a yield on cost of 88.82%.
Here’s one more great investment quote before you go:
“The whole secret to winning big in the stock market is not to be right all the time, but to lose the least amount possible when you’re wrong.” — William O’Neil
