“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 two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into The Gap Inc (NYSE: GPS)? Today, we examine the outcome of a two-decade investment into the stock back in 2000.
| Start date: | 12/11/2000 |
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| End date: | 12/10/2020 | ||||
| Start price/share: | $25.56 | ||||
| End price/share: | $21.63 | ||||
| Starting shares: | 391.20 | ||||
| Ending shares: | 579.40 | ||||
| Dividends reinvested/share: | $9.51 | ||||
| Total return: | 25.32% | ||||
| Average annual return: | 1.13% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,521.42 | ||||
The above analysis shows the two-decade investment result worked out as follows, with an annualized rate of return of 1.13%. This would have turned a $10K investment made 20 years ago into $12,521.42 today (as of 12/10/2020). On a total return basis, that’s a result of 25.32% (something to think about: how might GPS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Dividends are always an important investment factor to consider, and The Gap Inc has paid $9.51/share in dividends to shareholders over the past 20 years we looked at above. Many an investor will only invest in stocks that pay dividends, so this component of total return is always an important consideration. Automated reinvestment of dividends into additional shares of stock can be a great way for an investor to compound their returns. The above calculations are done with the assuption that dividends received over time are reinvested (the calcuations use the closing price on ex-date).
Based upon the most recent annualized dividend rate of .97/share, we calculate that GPS has a current yield of approximately 4.48%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .97 against the original $25.56/share purchase price. This works out to a yield on cost of 17.53%.
More investment wisdom to ponder:
“A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.” — Benjamin Graham
