“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 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 US Bancorp (NYSE: USB)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.
| Start date: | 12/02/1999 |
|
|||
| End date: | 11/29/2019 | ||||
| Start price/share: | $25.06 | ||||
| End price/share: | $60.03 | ||||
| Starting shares: | 399.00 | ||||
| Ending shares: | 734.14 | ||||
| Dividends reinvested/share: | $19.84 | ||||
| Total return: | 340.70% | ||||
| Average annual return: | 7.70% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $44,105.28 | ||||
As we can see, the two-decade investment result worked out well, with an annualized rate of return of 7.70%. This would have turned a $10K investment made 20 years ago into $44,105.28 today (as of 11/29/2019). On a total return basis, that’s a result of 340.70% (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 $19.84/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 1.68/share, we calculate that USB has a current yield of approximately 2.80%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.68 against the original $25.06/share purchase price. This works out to a yield on cost of 11.17%.
One more investment quote to leave you with:
“You can get in much more trouble with a good idea than a bad idea, because you forget that the good idea has limits.” — Benjamin Graham
