“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 NetApp, Inc. (NASD: NTAP)? Today, we examine the outcome of a two-decade investment into the stock back in 2001.
| Start date: | 01/22/2001 |
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| End date: | 01/20/2021 | ||||
| Start price/share: | $66.88 | ||||
| End price/share: | $64.51 | ||||
| Starting shares: | 149.53 | ||||
| Ending shares: | 179.94 | ||||
| Dividends reinvested/share: | $8.50 | ||||
| Total return: | 16.08% | ||||
| Average annual return: | 0.75% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $11,612.55 | ||||
As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 0.75%. This would have turned a $10K investment made 20 years ago into $11,612.55 today (as of 01/20/2021). On a total return basis, that’s a result of 16.08% (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 $8.50/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 2.98%. 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 $66.88/share purchase price. This works out to a yield on cost of 4.46%.
More investment wisdom to ponder:
“Spend each day trying to be a little wiser than you were when you woke up.” — Charlie Munger
