“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Halliburton Company (NYSE: HAL) back in 2004: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 07/12/2004 |
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| End date: | 07/11/2024 | ||||
| Start price/share: | $14.79 | ||||
| End price/share: | $33.62 | ||||
| Starting shares: | 676.13 | ||||
| Ending shares: | 903.28 | ||||
| Dividends reinvested/share: | $9.53 | ||||
| Total return: | 203.68% | ||||
| Average annual return: | 5.71% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $30,379.86 | ||||
As we can see, the two-decade investment result worked out well, with an annualized rate of return of 5.71%. This would have turned a $10K investment made 20 years ago into $30,379.86 today (as of 07/11/2024). On a total return basis, that’s a result of 203.68% (something to think about: how might HAL shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Halliburton Company paid investors a total of $9.53/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 .68/share, we calculate that HAL has a current yield of approximately 2.02%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .68 against the original $14.79/share purchase price. This works out to a yield on cost of 13.66%.
More investment wisdom to ponder:
“To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.” — Benjamin Graham
