“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 Baker Hughes Company (NASD: BKR)? Today, we examine the outcome of a two-decade investment into the stock back in 2004.
| Start date: | 05/06/2004 |
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| End date: | 05/03/2024 | ||||
| Start price/share: | $37.04 | ||||
| End price/share: | $31.92 | ||||
| Starting shares: | 269.98 | ||||
| Ending shares: | 382.37 | ||||
| Dividends reinvested/share: | $12.92 | ||||
| Total return: | 22.05% | ||||
| Average annual return: | 1.00% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,202.57 | ||||
As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 1.00%. This would have turned a $10K investment made 20 years ago into $12,202.57 today (as of 05/03/2024). On a total return basis, that’s a result of 22.05% (something to think about: how might BKR shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Baker Hughes Company paid investors a total of $12.92/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 .84/share, we calculate that BKR has a current yield of approximately 2.63%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .84 against the original $37.04/share purchase price. This works out to a yield on cost of 7.10%.
Another great investment quote to think about:
“Only when the tide goes out do you discover who’s been swimming naked.” — Warren Buffett
