“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 Blackrock Inc (NYSE: BLK), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 03/27/2003 |
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| End date: | 03/24/2023 | ||||
| Start price/share: | $43.57 | ||||
| End price/share: | $644.88 | ||||
| Starting shares: | 229.52 | ||||
| Ending shares: | 359.54 | ||||
| Dividends reinvested/share: | $151.80 | ||||
| Total return: | 2,218.60% | ||||
| Average annual return: | 17.02% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $231,947.07 | ||||
The above analysis shows the two-decade investment result worked out exceptionally well, with an annualized rate of return of 17.02%. This would have turned a $10K investment made 20 years ago into $231,947.07 today (as of 03/24/2023). On a total return basis, that’s a result of 2,218.60% (something to think about: how might BLK shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Blackrock Inc paid investors a total of $151.80/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 20/share, we calculate that BLK has a current yield of approximately 3.10%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 20 against the original $43.57/share purchase price. This works out to a yield on cost of 7.11%.
More investment wisdom to ponder:
“Most investors want to do today what they should have done yesterday.” — Larry Summers
