Photo credit: commons.wikimedia.org

“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 Baker Hughes Company (NASD: BKR)? Today, we examine the outcome of a two-decade investment into the stock back in 2004.

Start date: 05/06/2004
$10,000

05/06/2004
  $12,202

05/03/2024
End date: 05/03/2024
Start price/share: $37.04
End price/share: $31.92
Starting shares: 269.98
Ending shares: 382.37
Dividends reinvested/share: $12.92
Total return: 22.05%
Average annual return: 1.00%
Starting investment: $10,000.00
Ending investment: $12,202.57

As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 1.00%. This would have turned a $10K investment made 20 years ago into $12,202.57 today (as of 05/03/2024). On a total return basis, that’s a result of 22.05% (something to think about: how might BKR shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Baker Hughes Company paid investors a total of $12.92/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 .84/share, we calculate that BKR has a current yield of approximately 2.63%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .84 against the original $37.04/share purchase price. This works out to a yield on cost of 7.10%.

Another great investment quote to think about:
“Only when the tide goes out do you discover who’s been swimming naked.” — Warren Buffett