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“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 two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into The Gap Inc (NYSE: GPS)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.

Start date: 07/29/1999
$10,000

07/29/1999
$6,100

07/26/2019
End date: 07/26/2019
Start price/share: $46.31
End price/share: $19.54
Starting shares: 215.92
Ending shares: 312.11
Dividends reinvested/share: $9.16
Total return: -39.01%
Average annual return: -2.44%
Starting investment: $10,000.00
Ending investment: $6,100.66

As shown above, the two-decade investment result worked out poorly, with an annualized rate of return of -2.44%. This would have turned a $10K investment made 20 years ago into $6,100.66 today (as of 07/26/2019). On a total return basis, that’s a result of -39.01% (something to think about: how might GPS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that The Gap Inc paid investors a total of $9.16/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 .97/share, we calculate that GPS has a current yield of approximately 4.96%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .97 against the original $46.31/share purchase price. This works out to a yield on cost of 10.71%.

One more investment quote to leave you with:
“Most investors want to do today what they should have done yesterday.” — Larry Summers