
“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 United Parcel Service Inc (NYSE: UPS)? Today, we examine the outcome of a twenty year investment into the stock back in 2005.
Start date: | 01/31/2005 |
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End date: | 01/28/2025 | ||||
Start price/share: | $74.68 | ||||
End price/share: | $135.42 | ||||
Starting shares: | 133.90 | ||||
Ending shares: | 242.58 | ||||
Dividends reinvested/share: | $63.56 | ||||
Total return: | 228.51% | ||||
Average annual return: | 6.13% | ||||
Starting investment: | $10,000.00 | ||||
Ending investment: | $32,877.96 |
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 6.13%. This would have turned a $10K investment made 20 years ago into $32,877.96 today (as of 01/28/2025). On a total return basis, that’s a result of 228.51% (something to think about: how might UPS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that United Parcel Service Inc paid investors a total of $63.56/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 6.52/share, we calculate that UPS has a current yield of approximately 4.81%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.52 against the original $74.68/share purchase price. This works out to a yield on cost of 6.44%.
More investment wisdom to ponder:
“You can’t be a good value investor without being an independent thinker; you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do.” — Joel Greenblatt