“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a twenty year period?
Today, let’s look backwards in time to 2004, and take a look at what happened to investors who asked that very question about Bristol Myers Squibb Co. (NYSE: BMY), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 11/01/2004 |
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| End date: | 10/30/2024 | ||||
| Start price/share: | $23.36 | ||||
| End price/share: | $52.66 | ||||
| Starting shares: | 428.08 | ||||
| Ending shares: | 907.41 | ||||
| Dividends reinvested/share: | $31.04 | ||||
| Total return: | 377.84% | ||||
| Average annual return: | 8.13% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $47,765.03 | ||||
The above analysis shows the twenty year investment result worked out well, with an annualized rate of return of 8.13%. This would have turned a $10K investment made 20 years ago into $47,765.03 today (as of 10/30/2024). On a total return basis, that’s a result of 377.84% (something to think about: how might BMY shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Bristol Myers Squibb Co. paid investors a total of $31.04/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 2.4/share, we calculate that BMY has a current yield of approximately 4.56%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.4 against the original $23.36/share purchase price. This works out to a yield on cost of 19.52%.
More investment wisdom to ponder:
“If you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don’t need extraordinary intelligence to succeed as an investor.” — Warren Buffett
