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“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 General Dynamics Corp (NYSE: GD), by taking a look at the investment outcome over a twenty year holding period.

Start date: 12/06/1999
$10,000

12/06/1999
$103,323

12/04/2019
End date: 12/04/2019
Start price/share: $25.50
End price/share: $178.08
Starting shares: 392.16
Ending shares: 580.64
Dividends reinvested/share: $35.08
Total return: 934.01%
Average annual return: 12.38%
Starting investment: $10,000.00
Ending investment: $103,323.04

As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 12.38%. This would have turned a $10K investment made 20 years ago into $103,323.04 today (as of 12/04/2019). On a total return basis, that’s a result of 934.01% (something to think about: how might GD shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that General Dynamics Corp paid investors a total of $35.08/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 4.08/share, we calculate that GD has a current yield of approximately 2.29%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.08 against the original $25.50/share purchase price. This works out to a yield on cost of 8.98%.

One more piece of investment wisdom to leave you with:
“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” — Peter Lynch