“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 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 Halliburton Company (NYSE: HAL)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.
| Start date: | 05/01/2000 |
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| End date: | 04/28/2020 | ||||
| Start price/share: | $22.13 | ||||
| End price/share: | $9.52 | ||||
| Starting shares: | 451.88 | ||||
| Ending shares: | 619.33 | ||||
| Dividends reinvested/share: | $8.82 | ||||
| Total return: | -41.04% | ||||
| Average annual return: | -2.61% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $5,891.48 | ||||
As we can see, the two-decade investment result worked out poorly, with an annualized rate of return of -2.61%. This would have turned a $10K investment made 20 years ago into $5,891.48 today (as of 04/28/2020). On a total return basis, that’s a result of -41.04% (something to think about: how might HAL shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Halliburton Company paid investors a total of $8.82/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 .72/share, we calculate that HAL has a current yield of approximately 7.56%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .72 against the original $22.13/share purchase price. This works out to a yield on cost of 34.16%.
More investment wisdom to ponder:
“Buy not on optimism, but on arithmetic.” — Benjamin Graham
