“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 The Gap Inc (NYSE: GPS)? Today, we examine the outcome of a twenty year investment into the stock back in 2001.
|Average annual return:||0.01%|
As shown above, the twenty year investment result worked out as follows, with an annualized rate of return of 0.01%. This would have turned a $10K investment made 20 years ago into $10,020.02 today (as of 02/02/2021). On a total return basis, that’s a result of 0.27% (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.]
Notice that The Gap Inc paid investors a total of $9.51/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 .97/share, we calculate that GPS has a current yield of approximately 4.67%. 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 $30.65/share purchase price. This works out to a yield on cost of 15.24%.
Here’s one more great investment quote before you go:
“Ensure management’s interests are aligned with shareholders.” — Sam Zell