“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Analog Devices Inc (NASD: ADI)? Today, we examine the outcome of a twenty year investment into the stock back in 2004.
| Start date: | 09/07/2004 |
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| End date: | 09/03/2024 | ||||
| Start price/share: | $33.78 | ||||
| End price/share: | $218.71 | ||||
| Starting shares: | 296.03 | ||||
| Ending shares: | 469.32 | ||||
| Dividends reinvested/share: | $32.83 | ||||
| Total return: | 926.46% | ||||
| Average annual return: | 12.35% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $102,707.01 | ||||
As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 12.35%. This would have turned a $10K investment made 20 years ago into $102,707.01 today (as of 09/03/2024). On a total return basis, that’s a result of 926.46% (something to think about: how might ADI shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Analog Devices Inc paid investors a total of $32.83/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 3.68/share, we calculate that ADI has a current yield of approximately 1.68%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.68 against the original $33.78/share purchase price. This works out to a yield on cost of 4.97%.
One more piece of investment wisdom to leave you with:
“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.” — Warren Buffett
