“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Harley-Davidson Inc (NYSE: HOG)? Today, we examine the outcome of a twenty year investment into the stock back in 1999.
| Start date: | 07/15/1999 |
|
|||
| End date: | 07/12/2019 | ||||
| Start price/share: | $58.25 | ||||
| End price/share: | $36.63 | ||||
| Starting shares: | 171.67 | ||||
| Ending shares: | 239.92 | ||||
| Dividends reinvested/share: | $14.68 | ||||
| Total return: | -12.12% | ||||
| Average annual return: | -0.64% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $8,794.61 | ||||
As shown above, the twenty year investment result worked out poorly, with an annualized rate of return of -0.64%. This would have turned a $10K investment made 20 years ago into $8,794.61 today (as of 07/12/2019). On a total return basis, that’s a result of -12.12% (something to think about: how might HOG shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Harley-Davidson Inc paid investors a total of $14.68/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 1.5/share, we calculate that HOG has a current yield of approximately 4.09%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.5 against the original $58.25/share purchase price. This works out to a yield on cost of 7.02%.
One more piece of investment wisdom to leave you with:
“I think you have to learn that there’s a company behind every stock, and that there’s only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies.” — Peter Lynch
