“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a two-decade holding period for an investor who was considering Home Depot Inc (NYSE: HD) back in 1999, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 06/01/1999 |
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| End date: | 05/28/2019 | ||||
| Start price/share: | $37.21 | ||||
| End price/share: | $191.55 | ||||
| Starting shares: | 268.74 | ||||
| Ending shares: | 391.81 | ||||
| Dividends reinvested/share: | $25.79 | ||||
| Total return: | 650.50% | ||||
| Average annual return: | 10.60% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $75,027.84 | ||||
As we can see, the two-decade investment result worked out quite well, with an annualized rate of return of 10.60%. This would have turned a $10K investment made 20 years ago into $75,027.84 today (as of 05/28/2019). On a total return basis, that’s a result of 650.50% (something to think about: how might HD shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Home Depot Inc paid investors a total of $25.79/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 5.44/share, we calculate that HD has a current yield of approximately 2.84%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.44 against the original $37.21/share purchase price. This works out to a yield on cost of 7.63%.
One more investment quote to leave you with:
“Waiting helps you as an investor and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.” — Charlie Munger
