“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a twenty year period?
Today, let’s look backwards in time to 2004, and take a look at what happened to investors who asked that very question about Goldman Sachs Group Inc (NYSE: GS), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 02/27/2004 |
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| End date: | 02/26/2024 | ||||
| Start price/share: | $105.87 | ||||
| End price/share: | $390.22 | ||||
| Starting shares: | 94.46 | ||||
| Ending shares: | 126.27 | ||||
| Dividends reinvested/share: | $62.59 | ||||
| Total return: | 392.73% | ||||
| Average annual return: | 8.30% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $49,311.55 | ||||
The above analysis shows the twenty year investment result worked out well, with an annualized rate of return of 8.30%. This would have turned a $10K investment made 20 years ago into $49,311.55 today (as of 02/26/2024). On a total return basis, that’s a result of 392.73% (something to think about: how might GS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Beyond share price change, another component of GS’s total return these past 20 years has been the payment by Goldman Sachs Group Inc of $62.59/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).
Based upon the most recent annualized dividend rate of 11/share, we calculate that GS has a current yield of approximately 2.82%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 11 against the original $105.87/share purchase price. This works out to a yield on cost of 2.66%.
More investment wisdom to ponder:
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham
