“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 twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Moody’s Corp. (NYSE: MCO) back in 2003: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 06/26/2003 |
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| End date: | 06/23/2023 | ||||
| Start price/share: | $26.68 | ||||
| End price/share: | $337.28 | ||||
| Starting shares: | 374.81 | ||||
| Ending shares: | 465.61 | ||||
| Dividends reinvested/share: | $22.55 | ||||
| Total return: | 1,470.41% | ||||
| Average annual return: | 14.76% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $157,086.34 | ||||
As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 14.76%. This would have turned a $10K investment made 20 years ago into $157,086.34 today (as of 06/23/2023). On a total return basis, that’s a result of 1,470.41% (something to think about: how might MCO shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Moody’s Corp. paid investors a total of $22.55/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 3.08/share, we calculate that MCO has a current yield of approximately 0.91%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.08 against the original $26.68/share purchase price. This works out to a yield on cost of 3.41%.
Here’s one more great investment quote before you go:
“The most important thing about an investment philosophy is that you have one.” — David Booth
