“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 Medtronic PLC (NYSE: MDT)? Today, we examine the outcome of a two-decade investment into the stock back in 2004.
| Start date: | 06/14/2004 |
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| End date: | 06/12/2024 | ||||
| Start price/share: | $49.25 | ||||
| End price/share: | $82.23 | ||||
| Starting shares: | 203.05 | ||||
| Ending shares: | 302.51 | ||||
| Dividends reinvested/share: | $27.55 | ||||
| Total return: | 148.75% | ||||
| Average annual return: | 4.66% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $24,875.81 | ||||
As we can see, the two-decade investment result worked out as follows, with an annualized rate of return of 4.66%. This would have turned a $10K investment made 20 years ago into $24,875.81 today (as of 06/12/2024). On a total return basis, that’s a result of 148.75% (something to think about: how might MDT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Medtronic PLC paid investors a total of $27.55/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 2.8/share, we calculate that MDT has a current yield of approximately 3.41%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.8 against the original $49.25/share purchase price. This works out to a yield on cost of 6.92%.
Another great investment quote to think about:
“If you can follow only one bit of data, follow the earnings.” — Peter Lynch
