“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty year 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 twenty year investment into the stock back in 2003.
| Start date: | 06/19/2003 |
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| End date: | 06/16/2023 | ||||
| Start price/share: | $35.50 | ||||
| End price/share: | $31.98 | ||||
| Starting shares: | 281.69 | ||||
| Ending shares: | 567.12 | ||||
| Dividends reinvested/share: | $25.65 | ||||
| Total return: | 81.37% | ||||
| Average annual return: | 3.02% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $18,134.34 | ||||
The above analysis shows the twenty year investment result worked out as follows, with an annualized rate of return of 3.02%. This would have turned a $10K investment made 20 years ago into $18,134.34 today (as of 06/16/2023). On a total return basis, that’s a result of 81.37% (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 $25.65/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 5.78%. 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 $35.50/share purchase price. This works out to a yield on cost of 16.28%.
More investment wisdom to ponder:
“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.” — Charlie Munger
