“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 twenty year 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 Ralph Lauren Corp (NYSE: RL), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 09/07/1999 |
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| End date: | 09/04/2019 | ||||
| Start price/share: | $19.38 | ||||
| End price/share: | $89.80 | ||||
| Starting shares: | 516.13 | ||||
| Ending shares: | 607.88 | ||||
| Dividends reinvested/share: | $17.54 | ||||
| Total return: | 445.88% | ||||
| Average annual return: | 8.85% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $54,546.95 | ||||
As we can see, the twenty year investment result worked out well, with an annualized rate of return of 8.85%. This would have turned a $10K investment made 20 years ago into $54,546.95 today (as of 09/04/2019). On a total return basis, that’s a result of 445.88% (something to think about: how might RL shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Ralph Lauren Corp paid investors a total of $17.54/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 2.75/share, we calculate that RL has a current yield of approximately 3.06%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.75 against the original $19.38/share purchase price. This works out to a yield on cost of 15.79%.
More investment wisdom to ponder:
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” — Benjamin Graham
