“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a two-decade period?
Today, let’s look backwards in time to 1999, and take a look at what happened to investors who asked that very question about UDR Inc (NYSE: UDR), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 03/25/1999 |
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| End date: | 03/22/2019 | ||||
| Start price/share: | $9.81 | ||||
| End price/share: | $44.98 | ||||
| Starting shares: | 1,019.11 | ||||
| Ending shares: | 3,189.30 | ||||
| Dividends reinvested/share: | $22.75 | ||||
| Total return: | 1,334.55% | ||||
| Average annual return: | 14.24% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $143,391.13 | ||||
The above analysis shows the two-decade investment result worked out quite well, with an annualized rate of return of 14.24%. This would have turned a $10K investment made 20 years ago into $143,391.13 today (as of 03/22/2019). On a total return basis, that’s a result of 1,334.55% (something to think about: how might UDR shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that UDR Inc paid investors a total of $22.75/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 1.29/share, we calculate that UDR has a current yield of approximately 2.87%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.29 against the original $9.81/share purchase price. This works out to a yield on cost of 29.26%.
Another great investment quote to think about:
“As long as you enjoy investing, you’ll be willing to do the homework and stay in the game.” — Jim Cramer
