“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 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 Baker Hughes Company (NASD: BKR)? Today, we examine the outcome of a two-decade investment into the stock back in 2003.
| Start date: | 11/03/2003 |
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| End date: | 11/01/2023 | ||||
| Start price/share: | $28.00 | ||||
| End price/share: | $34.84 | ||||
| Starting shares: | 357.14 | ||||
| Ending shares: | 497.78 | ||||
| Dividends reinvested/share: | $12.41 | ||||
| Total return: | 73.43% | ||||
| Average annual return: | 2.79% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $17,341.35 | ||||
As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 2.79%. This would have turned a $10K investment made 20 years ago into $17,341.35 today (as of 11/01/2023). On a total return basis, that’s a result of 73.43% (something to think about: how might BKR shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Baker Hughes Company paid investors a total of $12.41/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 .8/share, we calculate that BKR has a current yield of approximately 2.30%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .8 against the original $28.00/share purchase price. This works out to a yield on cost of 8.21%.
One more piece of investment wisdom to leave you with:
“If I’ve learned one thing in this life it’s this: even if you lose, don’t lose the lesson.” — Daymond John
