“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a twenty year period?
Today, let’s look backwards in time to 2001, and take a look at what happened to investors who asked that very question about Martin Marietta Materials, Inc. (NYSE: MLM), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 03/19/2001 |
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| End date: | 03/17/2021 | ||||
| Start price/share: | $44.66 | ||||
| End price/share: | $340.00 | ||||
| Starting shares: | 223.91 | ||||
| Ending shares: | 294.73 | ||||
| Dividends reinvested/share: | $28.32 | ||||
| Total return: | 902.08% | ||||
| Average annual return: | 12.21% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $100,208.69 | ||||
As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 12.21%. This would have turned a $10K investment made 20 years ago into $100,208.69 today (as of 03/17/2021). On a total return basis, that’s a result of 902.08% (something to think about: how might MLM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Martin Marietta Materials, Inc. paid investors a total of $28.32/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 2.28/share, we calculate that MLM has a current yield of approximately 0.67%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.28 against the original $44.66/share purchase price. This works out to a yield on cost of 1.50%.
Another great investment quote to think about:
“An investment in knowledge pays the best interest.” — Benjamin Franklin
