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“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 Walt Disney Co. (NYSE: DIS), by taking a look at the investment outcome over a two-decade holding period.

Start date: 06/13/2003
$10,000

06/13/2003
  $57,451

06/12/2023
End date: 06/12/2023
Start price/share: $20.07
End price/share: $93.14
Starting shares: 498.26
Ending shares: 616.38
Dividends reinvested/share: $13.79
Total return: 474.09%
Average annual return: 9.13%
Starting investment: $10,000.00
Ending investment: $57,451.18

The above analysis shows the two-decade investment result worked out well, with an annualized rate of return of 9.13%. This would have turned a $10K investment made 20 years ago into $57,451.18 today (as of 06/12/2023). On a total return basis, that’s a result of 474.09% (something to think about: how might DIS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Walt Disney Co. paid investors a total of $13.79/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 1.76/share, we calculate that DIS has a current yield of approximately 1.89%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.76 against the original $20.07/share purchase price. This works out to a yield on cost of 9.42%.

More investment wisdom to ponder:
“If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.” — Peter Lynch