“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 Oracle Corp (NYSE: ORCL)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.
| Start date: | 04/24/2000 |
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| End date: | 04/23/2020 | ||||
| Start price/share: | $36.22 | ||||
| End price/share: | $51.97 | ||||
| Starting shares: | 276.09 | ||||
| Ending shares: | 318.54 | ||||
| Dividends reinvested/share: | $5.76 | ||||
| Total return: | 65.55% | ||||
| Average annual return: | 2.55% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $16,551.34 | ||||
The above analysis shows the two-decade investment result worked out as follows, with an annualized rate of return of 2.55%. This would have turned a $10K investment made 20 years ago into $16,551.34 today (as of 04/23/2020). On a total return basis, that’s a result of 65.55% (something to think about: how might ORCL shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Oracle Corp paid investors a total of $5.76/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 .96/share, we calculate that ORCL has a current yield of approximately 1.85%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .96 against the original $36.22/share purchase price. This works out to a yield on cost of 5.11%.
One more investment quote to leave you with:
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” — Warren Buffett
