“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 Marriott International, Inc. (NASD: MAR) 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: | 09/17/2004 |
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| End date: | 09/16/2024 | ||||
| Start price/share: | $23.19 | ||||
| End price/share: | $232.46 | ||||
| Starting shares: | 431.22 | ||||
| Ending shares: | 523.83 | ||||
| Dividends reinvested/share: | $15.61 | ||||
| Total return: | 1,117.69% | ||||
| Average annual return: | 13.30% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $121,672.52 | ||||
The above analysis shows the two-decade investment result worked out quite well, with an annualized rate of return of 13.30%. This would have turned a $10K investment made 20 years ago into $121,672.52 today (as of 09/16/2024). On a total return basis, that’s a result of 1,117.69% (something to think about: how might MAR shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Marriott International, Inc. paid investors a total of $15.61/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 2.52/share, we calculate that MAR has a current yield of approximately 1.08%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.52 against the original $23.19/share purchase price. This works out to a yield on cost of 4.66%.
Another great investment quote to think about:
“You can’t be a good value investor without being an independent thinker; you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do.” — Joel Greenblatt
