“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The investment philosophy practiced by Warren Buffett calls for investors to take a long-term horizon when making an investment, such as a decade-long holding period (or even longer), and reconsider making the investment in the first place if unable to envision holding the stock for at least five years. Today, we look at how such a long-term strategy would have done for investors in The Gap Inc (NYSE: GPS) back in 2009, holding through to today.
| Start date: | 08/17/2009 |
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| End date: | 08/15/2019 | ||||
| Start price/share: | $18.23 | ||||
| End price/share: | $15.36 | ||||
| Starting shares: | 548.55 | ||||
| Ending shares: | 715.68 | ||||
| Dividends reinvested/share: | $7.32 | ||||
| Total return: | 9.93% | ||||
| Average annual return: | 0.95% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $10,991.66 | ||||
As we can see, the decade-long investment result worked out as follows, with an annualized rate of return of 0.95%. This would have turned a $10K investment made 10 years ago into $10,991.66 today (as of 08/15/2019). On a total return basis, that’s a result of 9.93% (something to think about: how might GPS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Beyond share price change, another component of GPS’s total return these past 10 years has been the payment by The Gap Inc of $7.32/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).
Based upon the most recent annualized dividend rate of .97/share, we calculate that GPS has a current yield of approximately 6.32%. 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 $18.23/share purchase price. This works out to a yield on cost of 34.67%.
Here’s one more great investment quote before you go:
“The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase.” — Benjamin Graham
