“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 two-decade period?
Today, let’s look backwards in time to 2003, and take a look at what happened to investors who asked that very question about Verizon Communications Inc (NYSE: VZ), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 02/13/2003 |
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| End date: | 02/10/2023 | ||||
| Start price/share: | $32.66 | ||||
| End price/share: | $40.01 | ||||
| Starting shares: | 306.18 | ||||
| Ending shares: | 794.60 | ||||
| Dividends reinvested/share: | $40.12 | ||||
| Total return: | 217.92% | ||||
| Average annual return: | 5.95% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $31,780.21 | ||||
As shown above, the two-decade investment result worked out well, with an annualized rate of return of 5.95%. This would have turned a $10K investment made 20 years ago into $31,780.21 today (as of 02/10/2023). On a total return basis, that’s a result of 217.92% (something to think about: how might VZ shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 20 years, Verizon Communications Inc has paid $40.12/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 2.61/share, we calculate that VZ has a current yield of approximately 6.52%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.61 against the original $32.66/share purchase price. This works out to a yield on cost of 19.96%.
More investment wisdom to ponder:
“In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.” — Peter Lynch
