“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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.
| Start date: | 12/04/2000 |
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| End date: | 12/01/2020 | ||||
| Start price/share: | $57.88 | ||||
| End price/share: | $54.16 | ||||
| Starting shares: | 172.79 | ||||
| Ending shares: | 206.41 | ||||
| Dividends reinvested/share: | $8.02 | ||||
| Total return: | 11.79% | ||||
| Average annual return: | 0.56% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $11,181.98 | ||||
As we can see, the twenty year investment result worked out as follows, with an annualized rate of return of 0.56%. This would have turned a $10K investment made 20 years ago into $11,181.98 today (as of 12/01/2020). On a total return basis, that’s a result of 11.79% (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 3.55%. 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 $57.88/share purchase price. This works out to a yield on cost of 6.13%.
More investment wisdom to ponder:
“Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.” — Seth Klarman
