“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 CME Group (NASD: CME)? Today, we examine the outcome of a twenty year investment into the stock back in 2003.
| Start date: | 08/29/2003 |
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| End date: | 08/28/2023 | ||||
| Start price/share: | $14.08 | ||||
| End price/share: | $203.32 | ||||
| Starting shares: | 710.23 | ||||
| Ending shares: | 1,301.46 | ||||
| Dividends reinvested/share: | $68.88 | ||||
| Total return: | 2,546.13% | ||||
| Average annual return: | 17.79% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $264,818.12 | ||||
As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 17.79%. This would have turned a $10K investment made 20 years ago into $264,818.12 today (as of 08/28/2023). On a total return basis, that’s a result of 2,546.13% (something to think about: how might CME shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that CME Group paid investors a total of $68.88/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 4.4/share, we calculate that CME has a current yield of approximately 2.16%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.4 against the original $14.08/share purchase price. This works out to a yield on cost of 15.34%.
Here’s one more great investment quote before you go:
“Invest for the long haul. Don’t get too greedy and don’t get too scared.” — Shelby Davis
