“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 Walgreens Boots Alliance Inc (NASD: WBA)? Today, we examine the outcome of a twenty year investment into the stock back in 2001.
| Start date: | 02/22/2001 |
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| End date: | 02/19/2021 | ||||
| Start price/share: | $42.85 | ||||
| End price/share: | $48.86 | ||||
| Starting shares: | 233.37 | ||||
| Ending shares: | 328.29 | ||||
| Dividends reinvested/share: | $17.52 | ||||
| Total return: | 60.40% | ||||
| Average annual return: | 2.39% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $16,040.10 | ||||
As shown above, the twenty year investment result worked out as follows, with an annualized rate of return of 2.39%. This would have turned a $10K investment made 20 years ago into $16,040.10 today (as of 02/19/2021). On a total return basis, that’s a result of 60.40% (something to think about: how might WBA shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Walgreens Boots Alliance Inc paid investors a total of $17.52/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 1.87/share, we calculate that WBA has a current yield of approximately 3.83%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.87 against the original $42.85/share purchase price. This works out to a yield on cost of 8.94%.
Here’s one more great investment quote before you go:
“The four most dangerous words in investing are: ‘this time it’s different.'” — Sir John Templeton
