“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 Archer Daniels Midland Co. (NYSE: ADM)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.
| Start date: | 12/14/2000 |
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| End date: | 12/11/2020 | ||||
| Start price/share: | $11.96 | ||||
| End price/share: | $49.81 | ||||
| Starting shares: | 836.12 | ||||
| Ending shares: | 1,291.07 | ||||
| Dividends reinvested/share: | $14.69 | ||||
| Total return: | 543.08% | ||||
| Average annual return: | 9.75% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $64,314.96 | ||||
As we can see, the two-decade investment result worked out well, with an annualized rate of return of 9.75%. This would have turned a $10K investment made 20 years ago into $64,314.96 today (as of 12/11/2020). On a total return basis, that’s a result of 543.08% (something to think about: how might ADM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Archer Daniels Midland Co. paid investors a total of $14.69/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 1.44/share, we calculate that ADM has a current yield of approximately 2.89%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.44 against the original $11.96/share purchase price. This works out to a yield on cost of 24.16%.
Here’s one more great investment quote before you go:
“The best stock to buy is the one you already own.” — Peter Lynch
