“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into FedEx Corp (NYSE: FDX) back in 2004: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 03/01/2004 |
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| End date: | 02/27/2024 | ||||
| Start price/share: | $69.18 | ||||
| End price/share: | $241.40 | ||||
| Starting shares: | 144.55 | ||||
| Ending shares: | 171.79 | ||||
| Dividends reinvested/share: | $29.04 | ||||
| Total return: | 314.71% | ||||
| Average annual return: | 7.37% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $41,479.00 | ||||
As we can see, the twenty year investment result worked out well, with an annualized rate of return of 7.37%. This would have turned a $10K investment made 20 years ago into $41,479.00 today (as of 02/27/2024). On a total return basis, that’s a result of 314.71% (something to think about: how might FDX shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that FedEx Corp paid investors a total of $29.04/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 5.04/share, we calculate that FDX has a current yield of approximately 2.09%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.04 against the original $69.18/share purchase price. This works out to a yield on cost of 3.02%.
More investment wisdom to ponder:
“If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes.” — Warren Buffett
