“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Tyson Foods Inc (NYSE: TSN) back in 2003: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 05/02/2003 |
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| End date: | 05/01/2023 | ||||
| Start price/share: | $9.74 | ||||
| End price/share: | $62.33 | ||||
| Starting shares: | 1,026.69 | ||||
| Ending shares: | 1,360.30 | ||||
| Dividends reinvested/share: | $12.98 | ||||
| Total return: | 747.87% | ||||
| Average annual return: | 11.27% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $84,736.40 | ||||
As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 11.27%. This would have turned a $10K investment made 20 years ago into $84,736.40 today (as of 05/01/2023). On a total return basis, that’s a result of 747.87% (something to think about: how might TSN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Tyson Foods Inc paid investors a total of $12.98/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 1.92/share, we calculate that TSN has a current yield of approximately 3.08%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.92 against the original $9.74/share purchase price. This works out to a yield on cost of 31.62%.
One more piece of investment wisdom to leave you with:
“While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology.” — Seth Klarman
