“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a twenty year holding period for an investor who was considering Altria Group Inc (NYSE: MO) back in 2004, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 04/19/2004 |
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| End date: | 04/18/2024 | ||||
| Start price/share: | $56.45 | ||||
| End price/share: | $41.30 | ||||
| Starting shares: | 177.15 | ||||
| Ending shares: | 2,445.20 | ||||
| Dividends reinvested/share: | $124.40 | ||||
| Total return: | 909.87% | ||||
| Average annual return: | 12.25% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $100,989.68 | ||||
As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 12.25%. This would have turned a $10K investment made 20 years ago into $100,989.68 today (as of 04/18/2024). On a total return basis, that’s a result of 909.87% (something to think about: how might MO shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Altria Group Inc paid investors a total of $124.40/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 3.92/share, we calculate that MO has a current yield of approximately 9.49%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.92 against the original $56.45/share purchase price. This works out to a yield on cost of 16.81%.
More investment wisdom to ponder:
“Ensure management’s interests are aligned with shareholders.” — Sam Zell
