“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 Williams Cos Inc (NYSE: WMB)? Today, we examine the outcome of a two-decade investment into the stock back in 2001.
| Start date: | 09/10/2001 |
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| End date: | 09/08/2021 | ||||
| Start price/share: | $25.65 | ||||
| End price/share: | $24.75 | ||||
| Starting shares: | 389.86 | ||||
| Ending shares: | 817.05 | ||||
| Dividends reinvested/share: | $18.53 | ||||
| Total return: | 102.22% | ||||
| Average annual return: | 3.58% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $20,213.60 | ||||
As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 3.58%. This would have turned a $10K investment made 20 years ago into $20,213.60 today (as of 09/08/2021). On a total return basis, that’s a result of 102.22% (something to think about: how might WMB shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Williams Cos Inc paid investors a total of $18.53/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 1.64/share, we calculate that WMB has a current yield of approximately 6.63%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.64 against the original $25.65/share purchase price. This works out to a yield on cost of 25.85%.
More investment wisdom to ponder:
“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” — Warren Buffett
