“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 twenty year holding period for an investor who was considering Occidental Petroleum Corp (NYSE: OXY) back in 2000, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 12/15/2000 |
|
|||
| End date: | 12/14/2020 | ||||
| Start price/share: | $10.14 | ||||
| End price/share: | $19.17 | ||||
| Starting shares: | 986.19 | ||||
| Ending shares: | 1,856.84 | ||||
| Dividends reinvested/share: | $33.06 | ||||
| Total return: | 255.96% | ||||
| Average annual return: | 6.55% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $35,593.53 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 6.55%. This would have turned a $10K investment made 20 years ago into $35,593.53 today (as of 12/14/2020). On a total return basis, that’s a result of 255.96% (something to think about: how might OXY shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Occidental Petroleum Corp paid investors a total of $33.06/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 .04/share, we calculate that OXY has a current yield of approximately 0.21%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .04 against the original $10.14/share purchase price. This works out to a yield on cost of 2.07%.
More investment wisdom to ponder:
“Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.” — Peter Lynch
