“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a two-decade holding period for an investor who was considering Yum! Brands Inc (NYSE: YUM) back in 2000, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 04/07/2000 |
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| End date: | 04/06/2020 | ||||
| Start price/share: | $5.69 | ||||
| End price/share: | $70.50 | ||||
| Starting shares: | 1,757.47 | ||||
| Ending shares: | 2,340.78 | ||||
| Dividends reinvested/share: | $13.52 | ||||
| Total return: | 1,550.25% | ||||
| Average annual return: | 15.04% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $165,060.93 | ||||
As shown above, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 15.04%. This would have turned a $10K investment made 20 years ago into $165,060.93 today (as of 04/06/2020). On a total return basis, that’s a result of 1,550.25% (something to think about: how might YUM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Yum! Brands Inc paid investors a total of $13.52/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 1.88/share, we calculate that YUM has a current yield of approximately 2.67%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.88 against the original $5.69/share purchase price. This works out to a yield on cost of 46.92%.
Here’s one more great investment quote before you go:
“Cash is a fact, profit is an opinion.” — Alfred Rappaport
