“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into NetApp, Inc. (NASD: NTAP)? Today, we examine the outcome of a twenty year investment into the stock back in 2000.
|Average annual return:||-4.25%|
As shown above, the twenty year investment result worked out poorly, with an annualized rate of return of -4.25%. This would have turned a $10K investment made 20 years ago into $4,194.42 today (as of 10/13/2020). On a total return basis, that’s a result of -58.07% (something to think about: how might NTAP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that NetApp, Inc. paid investors a total of $8.02/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 1.92/share, we calculate that NTAP has a current yield of approximately 4.10%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.92 against the original $133.56/share purchase price. This works out to a yield on cost of 3.07%.
More investment wisdom to ponder:
“Successful investing is anticipating the anticipations of others.” — John Maynard Keynes