“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Lockheed Martin Corp (NYSE: LMT) back in 2001: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
|Average annual return:||15.34%|
The above analysis shows the twenty year investment result worked out exceptionally well, with an annualized rate of return of 15.34%. This would have turned a $10K investment made 20 years ago into $173,823.45 today (as of 03/29/2021). On a total return basis, that’s a result of 1,637.95% (something to think about: how might LMT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Lockheed Martin Corp paid investors a total of $80.48/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 10.4/share, we calculate that LMT has a current yield of approximately 2.79%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 10.4 against the original $35.65/share purchase price. This works out to a yield on cost of 7.83%.
More investment wisdom to ponder:
“Thousands of experts study overbought indicators, head-and-shoulder patterns, put-call ratios, the Fed’s policy on money supplyâ€¦and they can’t predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack.” — Peter Lynch