“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 International Paper Co (NYSE: IP)? Today, we examine the outcome of a two-decade investment into the stock back in 2004.
| Start date: | 01/26/2004 |
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| End date: | 01/24/2024 | ||||
| Start price/share: | $40.24 | ||||
| End price/share: | $36.18 | ||||
| Starting shares: | 248.51 | ||||
| Ending shares: | 507.50 | ||||
| Dividends reinvested/share: | $26.11 | ||||
| Total return: | 83.61% | ||||
| Average annual return: | 3.08% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $18,348.33 | ||||
As we can see, the two-decade investment result worked out as follows, with an annualized rate of return of 3.08%. This would have turned a $10K investment made 20 years ago into $18,348.33 today (as of 01/24/2024). On a total return basis, that’s a result of 83.61% (something to think about: how might IP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that International Paper Co paid investors a total of $26.11/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 1.85/share, we calculate that IP has a current yield of approximately 5.11%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.85 against the original $40.24/share purchase price. This works out to a yield on cost of 12.70%.
One more piece of investment wisdom to leave you with:
“When the public is most frightened, only the strong are left, and that’s when the market is in the best possible hands.” — Victor Niederhoffer
