“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 State Street Corp. (NYSE: STT)? Today, we examine the outcome of a two-decade investment into the stock back in 2003.
| Start date: | 10/30/2003 |
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| End date: | 10/27/2023 | ||||
| Start price/share: | $52.16 | ||||
| End price/share: | $62.93 | ||||
| Starting shares: | 191.72 | ||||
| Ending shares: | 279.31 | ||||
| Dividends reinvested/share: | $24.57 | ||||
| Total return: | 75.77% | ||||
| Average annual return: | 2.86% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $17,577.78 | ||||
As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 2.86%. This would have turned a $10K investment made 20 years ago into $17,577.78 today (as of 10/27/2023). On a total return basis, that’s a result of 75.77% (something to think about: how might STT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that State Street Corp. paid investors a total of $24.57/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 2.76/share, we calculate that STT has a current yield of approximately 4.39%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.76 against the original $52.16/share purchase price. This works out to a yield on cost of 8.42%.
More investment wisdom to ponder:
“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” — Seth Klarman
