“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 Yum! Brands Inc (NYSE: YUM)? Today, we examine the outcome of a two-decade investment into the stock back in 2004.
| Start date: | 02/05/2004 |
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| End date: | 02/02/2024 | ||||
| Start price/share: | $11.88 | ||||
| End price/share: | $128.75 | ||||
| Starting shares: | 841.75 | ||||
| Ending shares: | 1,200.85 | ||||
| Dividends reinvested/share: | $21.63 | ||||
| Total return: | 1,446.10% | ||||
| Average annual return: | 14.67% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $154,640.06 | ||||
As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 14.67%. This would have turned a $10K investment made 20 years ago into $154,640.06 today (as of 02/02/2024). On a total return basis, that’s a result of 1,446.10% (something to think about: how might YUM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Yum! Brands Inc paid investors a total of $21.63/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 2.68/share, we calculate that YUM has a current yield of approximately 2.08%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.68 against the original $11.88/share purchase price. This works out to a yield on cost of 17.51%.
One more piece of investment wisdom to leave you with:
“Finding the best person or the best organization to invest your money is one of the most important financial decisions you’ll ever make.” — Bill Gross
