“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 Stanley Black & Decker Inc (NYSE: SWK) back in 1999, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 09/10/1999 |
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| End date: | 09/09/2019 | ||||
| Start price/share: | $25.56 | ||||
| End price/share: | $143.14 | ||||
| Starting shares: | 391.20 | ||||
| Ending shares: | 646.25 | ||||
| Dividends reinvested/share: | $31.47 | ||||
| Total return: | 825.05% | ||||
| Average annual return: | 11.76% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $92,524.56 | ||||
As we can see, the two-decade investment result worked out quite well, with an annualized rate of return of 11.76%. This would have turned a $10K investment made 20 years ago into $92,524.56 today (as of 09/09/2019). On a total return basis, that’s a result of 825.05% (something to think about: how might SWK shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Stanley Black & Decker Inc paid investors a total of $31.47/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 2.76/share, we calculate that SWK has a current yield of approximately 1.93%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.76 against the original $25.56/share purchase price. This works out to a yield on cost of 7.55%.
One more investment quote to leave you with:
“We ignore outlooks and forecasts… we’re lousy at it and we admit it … everyone else is lousy too, but most people won’t admit it.” — Martin Whitman
