“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 two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Flowserve Corp (NYSE: FLS)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.
| Start date: | 09/09/1999 |
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| End date: | 09/06/2019 | ||||
| Start price/share: | $5.33 | ||||
| End price/share: | $44.02 | ||||
| Starting shares: | 1,876.17 | ||||
| Ending shares: | 2,224.67 | ||||
| Dividends reinvested/share: | $6.81 | ||||
| Total return: | 879.30% | ||||
| Average annual return: | 12.08% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $97,911.53 | ||||
As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 12.08%. This would have turned a $10K investment made 20 years ago into $97,911.53 today (as of 09/06/2019). On a total return basis, that’s a result of 879.30% (something to think about: how might FLS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Flowserve Corp paid investors a total of $6.81/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 .76/share, we calculate that FLS has a current yield of approximately 1.73%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .76 against the original $5.33/share purchase price. This works out to a yield on cost of 32.46%.
One more piece of investment wisdom to leave you with:
“Buy not on optimism, but on arithmetic.” — Benjamin Graham
