“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 two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Ford Motor Co. (NYSE: F)? Today, we examine the outcome of a two-decade investment into the stock back in 2003.
| Start date: | 09/08/2003 |
|
|||
| End date: | 09/05/2023 | ||||
| Start price/share: | $11.83 | ||||
| End price/share: | $12.09 | ||||
| Starting shares: | 845.31 | ||||
| Ending shares: | 1,569.33 | ||||
| Dividends reinvested/share: | $7.53 | ||||
| Total return: | 89.73% | ||||
| Average annual return: | 3.25% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $18,961.70 | ||||
As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 3.25%. This would have turned a $10K investment made 20 years ago into $18,961.70 today (as of 09/05/2023). On a total return basis, that’s a result of 89.73% (something to think about: how might F shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Ford Motor Co. paid investors a total of $7.53/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 .6/share, we calculate that F has a current yield of approximately 4.96%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .6 against the original $11.83/share purchase price. This works out to a yield on cost of 41.93%.
Here’s one more great investment quote before you go:
“Although it’s easy to forget sometimes, a share is not a lottery ticket… it’s part-ownership of a business.” — Peter Lynch
