“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 The Gap Inc (NYSE: GPS)? Today, we examine the outcome of a two-decade investment into the stock back in 2001.
|Average annual return:||2.27%|
As shown above, the two-decade investment result worked out as follows, with an annualized rate of return of 2.27%. This would have turned a $10K investment made 20 years ago into $15,668.18 today (as of 05/26/2021). On a total return basis, that’s a result of 56.62% (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.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 20 years, The Gap Inc has paid $9.74/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of .48/share, we calculate that GPS has a current yield of approximately 1.41%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .48 against the original $32.40/share purchase price. This works out to a yield on cost of 4.35%.
Here’s one more great investment quote before you go:
“There’s a virtuous cycle when people have to defend challenges to their ideas. Any gaps in thinking or analysis become clear pretty quickly when smart people ask good, logical questions.” — Joel Greenblatt