“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a two-decade holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 20 years to 2004, investors considering an investment into shares of ConocoPhillips (NYSE: COP) may have been pondering this very question and thinking about their potential investment result over a full two-decade time horizon. Here’s how that would have worked out.
| Start date: | 03/08/2004 |
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| End date: | 03/06/2024 | ||||
| Start price/share: | $26.92 | ||||
| End price/share: | $111.99 | ||||
| Starting shares: | 371.47 | ||||
| Ending shares: | 714.60 | ||||
| Dividends reinvested/share: | $39.14 | ||||
| Total return: | 700.28% | ||||
| Average annual return: | 10.95% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $79,968.15 | ||||
The above analysis shows the two-decade investment result worked out quite well, with an annualized rate of return of 10.95%. This would have turned a $10K investment made 20 years ago into $79,968.15 today (as of 03/06/2024). On a total return basis, that’s a result of 700.28% (something to think about: how might COP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 20 years, ConocoPhillips has paid $39.14/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 2.32/share, we calculate that COP has a current yield of approximately 2.07%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.32 against the original $26.92/share purchase price. This works out to a yield on cost of 7.69%.
More investment wisdom to ponder:
“The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.” — Warren Buffett
