“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 PulteGroup Inc (NYSE: PHM)? Today, we examine the outcome of a twenty year investment into the stock back in 2001.
| Start date: | 02/12/2001 |
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| End date: | 02/11/2021 | ||||
| Start price/share: | $8.95 | ||||
| End price/share: | $49.51 | ||||
| Starting shares: | 1,117.32 | ||||
| Ending shares: | 1,305.56 | ||||
| Dividends reinvested/share: | $3.61 | ||||
| Total return: | 546.38% | ||||
| Average annual return: | 9.77% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $64,582.81 | ||||
As we can see, the twenty year investment result worked out well, with an annualized rate of return of 9.77%. This would have turned a $10K investment made 20 years ago into $64,582.81 today (as of 02/11/2021). On a total return basis, that’s a result of 546.38% (something to think about: how might PHM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PulteGroup Inc paid investors a total of $3.61/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 .56/share, we calculate that PHM has a current yield of approximately 1.13%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .56 against the original $8.95/share purchase price. This works out to a yield on cost of 12.63%.
Another great investment quote to think about:
“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.” — Peter Lynch
