“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Deere & Co. (NYSE: DE) back in 1999: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 12/20/1999 |
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| End date: | 12/19/2019 | ||||
| Start price/share: | $20.44 | ||||
| End price/share: | $172.76 | ||||
| Starting shares: | 489.24 | ||||
| Ending shares: | 746.11 | ||||
| Dividends reinvested/share: | $28.27 | ||||
| Total return: | 1,188.98% | ||||
| Average annual return: | 13.63% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $128,963.94 | ||||
As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 13.63%. This would have turned a $10K investment made 20 years ago into $128,963.94 today (as of 12/19/2019). On a total return basis, that’s a result of 1,188.98% (something to think about: how might DE shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Deere & Co. paid investors a total of $28.27/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 3.04/share, we calculate that DE has a current yield of approximately 1.76%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.04 against the original $20.44/share purchase price. This works out to a yield on cost of 8.61%.
Here’s one more great investment quote before you go:
“The right time for a company to finance its growth is not when it needs capital, but rather when the market is most receptive to providing capital.” — Michael Milken
