“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a two-decade holding period for an investor who was considering Union Pacific Corp (NYSE: UNP) back in 1999, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 09/27/1999 |
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| End date: | 09/25/2019 | ||||
| Start price/share: | $12.17 | ||||
| End price/share: | $163.60 | ||||
| Starting shares: | 821.69 | ||||
| Ending shares: | 1,193.84 | ||||
| Dividends reinvested/share: | $22.19 | ||||
| Total return: | 1,853.11% | ||||
| Average annual return: | 16.01% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $195,181.49 | ||||
As shown above, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 16.01%. This would have turned a $10K investment made 20 years ago into $195,181.49 today (as of 09/25/2019). On a total return basis, that’s a result of 1,853.11% (something to think about: how might UNP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Union Pacific Corp paid investors a total of $22.19/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 3.88/share, we calculate that UNP has a current yield of approximately 2.37%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.88 against the original $12.17/share purchase price. This works out to a yield on cost of 19.47%.
One more investment quote to leave you with:
“Don’t wait for the perfect time, you will wait forever. Always take advantage of the time you’re given and make it perfect.” — Daymond John
