“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 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 US Bancorp (NYSE: USB)? Today, we examine the outcome of a twenty year investment into the stock back in 2004.
| Start date: | 10/11/2004 |
|
|||
| End date: | 10/09/2024 | ||||
| Start price/share: | $29.47 | ||||
| End price/share: | $45.10 | ||||
| Starting shares: | 339.33 | ||||
| Ending shares: | 642.81 | ||||
| Dividends reinvested/share: | $24.67 | ||||
| Total return: | 189.91% | ||||
| Average annual return: | 5.46% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $28,969.77 | ||||
As we can see, the twenty year investment result worked out well, with an annualized rate of return of 5.46%. This would have turned a $10K investment made 20 years ago into $28,969.77 today (as of 10/09/2024). On a total return basis, that’s a result of 189.91% (something to think about: how might USB shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that US Bancorp paid investors a total of $24.67/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/share, we calculate that USB has a current yield of approximately 4.43%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $29.47/share purchase price. This works out to a yield on cost of 15.03%.
One more piece of investment wisdom to leave you with:
“Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and mutual funds altogether.” — Peter Lynch
