“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 two-decade period?
Today, let’s look backwards in time to 2000, and take a look at what happened to investors who asked that very question about Garmin Ltd (NASD: GRMN), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 12/14/2000 |
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| End date: | 10/27/2020 | ||||
| Start price/share: | $10.06 | ||||
| End price/share: | $98.61 | ||||
| Starting shares: | 994.04 | ||||
| Ending shares: | 1,693.35 | ||||
| Dividends reinvested/share: | $24.26 | ||||
| Total return: | 1,569.81% | ||||
| Average annual return: | 15.21% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $166,874.90 | ||||
As we can see, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 15.21%. This would have turned a $10K investment made 20 years ago into $166,874.90 today (as of 10/27/2020). On a total return basis, that’s a result of 1,569.81% (something to think about: how might GRMN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Garmin Ltd paid investors a total of $24.26/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 2.44/share, we calculate that GRMN has a current yield of approximately 2.47%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.44 against the original $10.06/share purchase price. This works out to a yield on cost of 24.55%.
More investment wisdom to ponder:
“There’s a virtuous cycle when people have to defend challenges to their ideas. Any gaps in thinking or analysis become clear pretty quickly when smart people ask good, logical questions.” — Joel Greenblatt
