“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a two-decade holding period for an investor who was considering Target Corp (NYSE: TGT) back in 2001, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 06/11/2001 |
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| End date: | 06/08/2021 | ||||
| Start price/share: | $37.25 | ||||
| End price/share: | $235.10 | ||||
| Starting shares: | 268.46 | ||||
| Ending shares: | 393.67 | ||||
| Dividends reinvested/share: | $26.15 | ||||
| Total return: | 825.51% | ||||
| Average annual return: | 11.77% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $92,633.87 | ||||
As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 11.77%. This would have turned a $10K investment made 20 years ago into $92,633.87 today (as of 06/08/2021). On a total return basis, that’s a result of 825.51% (something to think about: how might TGT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Target Corp paid investors a total of $26.15/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 2.72/share, we calculate that TGT has a current yield of approximately 1.16%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.72 against the original $37.25/share purchase price. This works out to a yield on cost of 3.11%.
Here’s one more great investment quote before you go:
“If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” — John Bogle
