“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 Host Hotels & Resorts Inc (NYSE: HST), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 07/22/1999 |
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| End date: | 07/19/2019 | ||||
| Start price/share: | $10.46 | ||||
| End price/share: | $17.67 | ||||
| Starting shares: | 956.02 | ||||
| Ending shares: | 1,868.42 | ||||
| Dividends reinvested/share: | $10.34 | ||||
| Total return: | 230.15% | ||||
| Average annual return: | 6.15% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $33,002.13 | ||||
The above analysis shows the two-decade investment result worked out well, with an annualized rate of return of 6.15%. This would have turned a $10K investment made 20 years ago into $33,002.13 today (as of 07/19/2019). On a total return basis, that’s a result of 230.15% (something to think about: how might HST shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Host Hotels & Resorts Inc paid investors a total of $10.34/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 .8/share, we calculate that HST has a current yield of approximately 4.53%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .8 against the original $10.46/share purchase price. This works out to a yield on cost of 43.31%.
One more investment quote to leave you with:
“We ignore outlooks and forecasts… we’re lousy at it and we admit it … everyone else is lousy too, but most people won’t admit it.” — Martin Whitman
