“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 Wabtec Corp (NYSE: WAB), by taking a look at the investment outcome over a twenty year holding period.
| Start date: | 11/29/1999 |
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| End date: | 11/26/2019 | ||||
| Start price/share: | $9.69 | ||||
| End price/share: | $80.11 | ||||
| Starting shares: | 1,031.99 | ||||
| Ending shares: | 1,091.23 | ||||
| Dividends reinvested/share: | $2.71 | ||||
| Total return: | 774.18% | ||||
| Average annual return: | 11.45% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $87,470.06 | ||||
As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 11.45%. This would have turned a $10K investment made 20 years ago into $87,470.06 today (as of 11/26/2019). On a total return basis, that’s a result of 774.18% (something to think about: how might WAB shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Wabtec Corp paid investors a total of $2.71/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 .48/share, we calculate that WAB has a current yield of approximately 0.60%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .48 against the original $9.69/share purchase price. This works out to a yield on cost of 6.19%.
One more investment quote to leave you with:
“The best stock to buy is the one you already own.” — Peter Lynch
