“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 Pfizer Inc (NYSE: PFE)? Today, we examine the outcome of a twenty year investment into the stock back in 2004.
| Start date: | 11/18/2004 |
|
|||
| End date: | 11/15/2024 | ||||
| Start price/share: | $26.35 | ||||
| End price/share: | $24.80 | ||||
| Starting shares: | 379.51 | ||||
| Ending shares: | 856.41 | ||||
| Dividends reinvested/share: | $22.87 | ||||
| Total return: | 112.39% | ||||
| Average annual return: | 3.84% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $21,251.19 | ||||
As shown above, the twenty year investment result worked out as follows, with an annualized rate of return of 3.84%. This would have turned a $10K investment made 20 years ago into $21,251.19 today (as of 11/15/2024). On a total return basis, that’s a result of 112.39% (something to think about: how might PFE shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Pfizer Inc paid investors a total of $22.87/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 1.68/share, we calculate that PFE has a current yield of approximately 6.77%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.68 against the original $26.35/share purchase price. This works out to a yield on cost of 25.69%.
One more piece of investment wisdom to leave you with:
“Although it’s easy to forget sometimes, a share is not a lottery ticket… it’s part-ownership of a business.” — Peter Lynch
