“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 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 The Gap Inc (NYSE: GPS)? Today, we examine the outcome of a twenty year investment into the stock back in 1999.
| Start date: | 08/30/1999 |
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| End date: | 08/29/2019 | ||||
| Start price/share: | $39.12 | ||||
| End price/share: | $15.91 | ||||
| Starting shares: | 255.59 | ||||
| Ending shares: | 369.45 | ||||
| Dividends reinvested/share: | $9.16 | ||||
| Total return: | -41.22% | ||||
| Average annual return: | -2.62% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $5,878.53 | ||||
As shown above, the twenty year investment result worked out poorly, with an annualized rate of return of -2.62%. This would have turned a $10K investment made 20 years ago into $5,878.53 today (as of 08/29/2019). On a total return basis, that’s a result of -41.22% (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 6.10%. 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 $39.12/share purchase price. This works out to a yield on cost of 15.59%.
Another great investment quote to think about:
“Be fearful when others are greedy; be greedy when others are fearful.” — Warren Buffett
