“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a two-decade holding period for an investor who was considering United Parcel Service Inc (NYSE: UPS) back in 2000, bought the stock, ignored the market’s ups and downs, and simply held through to today.
|Average annual return:||7.79%|
As we can see, the two-decade investment result worked out well, with an annualized rate of return of 7.79%. This would have turned a $10K investment made 20 years ago into $44,839.29 today (as of 11/20/2020). On a total return basis, that’s a result of 348.31% (something to think about: how might UPS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that United Parcel Service Inc paid investors a total of $43.96/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 4.04/share, we calculate that UPS 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 4.04 against the original $60.88/share purchase price. This works out to a yield on cost of 4.06%.
One more investment quote to leave you with:
“The most important three words in investing is: â€œI don’t know.â€ If someone doesn’t say that to you then they are lying.” — James Altucher