“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 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 Electronic Arts, Inc. (NASD: EA)? Today, we examine the outcome of a twenty year investment into the stock back in 2003.
| Start date: | 06/26/2003 |
|
|||
| End date: | 06/23/2023 | ||||
| Start price/share: | $75.27 | ||||
| End price/share: | $125.25 | ||||
| Starting shares: | 132.86 | ||||
| Ending shares: | 134.89 | ||||
| Dividends reinvested/share: | $1.97 | ||||
| Total return: | 68.95% | ||||
| Average annual return: | 2.66% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $16,907.82 | ||||
As shown above, the twenty year investment result worked out as follows, with an annualized rate of return of 2.66%. This would have turned a $10K investment made 20 years ago into $16,907.82 today (as of 06/23/2023). On a total return basis, that’s a result of 68.95% (something to think about: how might EA shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Electronic Arts, Inc. paid investors a total of $1.97/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 .76/share, we calculate that EA has a current yield of approximately 0.61%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .76 against the original $75.27/share purchase price. This works out to a yield on cost of 0.81%.
More investment wisdom to ponder:
“Be fearful when others are greedy; be greedy when others are fearful.” — Warren Buffett
