“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The investment philosophy practiced by Warren Buffett calls for investors to take a long-term horizon when making an investment, such as a two-decade holding period (or even longer), and reconsider making the investment in the first place if unable to envision holding the stock for at least five years. Today, we look at how such a long-term strategy would have done for investors in International Business Machines Corp (NYSE: IBM) back in 2003, holding through to today.
| Start date: | 02/10/2003 |
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| End date: | 02/07/2023 | ||||
| Start price/share: | $74.48 | ||||
| End price/share: | $135.84 | ||||
| Starting shares: | 134.26 | ||||
| Ending shares: | 228.39 | ||||
| Dividends reinvested/share: | $71.06 | ||||
| Total return: | 210.24% | ||||
| Average annual return: | 5.82% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $31,009.14 | ||||
As shown above, the two-decade investment result worked out well, with an annualized rate of return of 5.82%. This would have turned a $10K investment made 20 years ago into $31,009.14 today (as of 02/07/2023). On a total return basis, that’s a result of 210.24% (something to think about: how might IBM 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 IBM’s total return these past 20 years has been the payment by International Business Machines Corp of $71.06/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 6.6/share, we calculate that IBM has a current yield of approximately 4.86%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.6 against the original $74.48/share purchase price. This works out to a yield on cost of 6.53%.
One more piece of investment wisdom to leave you with:
“People who invest make money for themselves; people who speculate make money for their brokers.” — Benjamin Graham
