“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?
A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a twenty year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Robert Half International Inc. (NYSE: RHI) back in 1999. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 04/12/1999 |
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| End date: | 04/11/2019 | ||||
| Start price/share: | $15.53 | ||||
| End price/share: | $66.49 | ||||
| Starting shares: | 643.92 | ||||
| Ending shares: | 829.27 | ||||
| Dividends reinvested/share: | $9.21 | ||||
| Total return: | 451.38% | ||||
| Average annual return: | 8.91% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $55,177.42 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 8.91%. This would have turned a $10K investment made 20 years ago into $55,177.42 today (as of 04/11/2019). On a total return basis, that’s a result of 451.38% (something to think about: how might RHI shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Robert Half International Inc. paid investors a total of $9.21/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 1.24/share, we calculate that RHI has a current yield of approximately 1.86%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.24 against the original $15.53/share purchase price. This works out to a yield on cost of 11.98%.
Another great investment quote to think about:
“A 10% decline in the market is fairly common, it happens about once a year. Investors who realize this are less likely to sell in a panic, and more likely to remain invested, benefitting from the wealthbuilding power of stocks.” — Christopher Davis
