“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into International Paper Co (NYSE: IP)? Today, we examine the outcome of a two-decade investment into the stock back in 2003.
| Start date: | 04/14/2003 |
|
|||
| End date: | 04/11/2023 | ||||
| Start price/share: | $31.69 | ||||
| End price/share: | $36.54 | ||||
| Starting shares: | 315.56 | ||||
| Ending shares: | 630.17 | ||||
| Dividends reinvested/share: | $25.42 | ||||
| Total return: | 130.26% | ||||
| Average annual return: | 4.26% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $23,038.47 | ||||
As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 4.26%. This would have turned a $10K investment made 20 years ago into $23,038.47 today (as of 04/11/2023). On a total return basis, that’s a result of 130.26% (something to think about: how might IP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that International Paper Co paid investors a total of $25.42/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 1.85/share, we calculate that IP has a current yield of approximately 5.06%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.85 against the original $31.69/share purchase price. This works out to a yield on cost of 15.97%.
One more piece of investment wisdom to leave you with:
“Investing is the intersection of economics and psychology.” — Seth Klarman
