“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Wells Fargo & Co (NYSE: WFC)? Today, we examine the outcome of a twenty year investment into the stock back in 2004.
| Start date: | 05/03/2004 |
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| End date: | 05/01/2024 | ||||
| Start price/share: | $28.49 | ||||
| End price/share: | $59.52 | ||||
| Starting shares: | 351.00 | ||||
| Ending shares: | 617.91 | ||||
| Dividends reinvested/share: | $22.48 | ||||
| Total return: | 267.78% | ||||
| Average annual return: | 6.73% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $36,809.73 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 6.73%. This would have turned a $10K investment made 20 years ago into $36,809.73 today (as of 05/01/2024). On a total return basis, that’s a result of 267.78% (something to think about: how might WFC shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Wells Fargo & Co paid investors a total of $22.48/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 1.4/share, we calculate that WFC has a current yield of approximately 2.35%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.4 against the original $28.49/share purchase price. This works out to a yield on cost of 8.25%.
More investment wisdom to ponder:
“To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.” — Benjamin Graham
