“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 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 Electronic Arts, Inc. (NASD: EA)? Today, we examine the outcome of a two-decade investment into the stock back in 2004.
| Start date: | 06/28/2004 |
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| End date: | 06/26/2024 | ||||
| Start price/share: | $53.28 | ||||
| End price/share: | $140.57 | ||||
| Starting shares: | 187.69 | ||||
| Ending shares: | 191.67 | ||||
| Dividends reinvested/share: | $2.73 | ||||
| Total return: | 169.42% | ||||
| Average annual return: | 5.08% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $26,951.20 | ||||
The above analysis shows the two-decade investment result worked out well, with an annualized rate of return of 5.08%. This would have turned a $10K investment made 20 years ago into $26,951.20 today (as of 06/26/2024). On a total return basis, that’s a result of 169.42% (something to think about: how might EA shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Electronic Arts, Inc. paid investors a total of $2.73/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 .76/share, we calculate that EA has a current yield of approximately 0.54%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .76 against the original $53.28/share purchase price. This works out to a yield on cost of 1.01%.
Here’s one more great investment quote before you go:
“I make no attempt to forecast the market; my efforts are devoted to finding undervalued securities.” — Warren Buffett
