“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 Rockwell Automation, Inc. (NYSE: ROK) 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.
| Start date: | 06/04/2001 |
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| End date: | 06/02/2021 | ||||
| Start price/share: | $45.88 | ||||
| End price/share: | $271.82 | ||||
| Starting shares: | 217.96 | ||||
| Ending shares: | 896.83 | ||||
| Dividends reinvested/share: | $62.77 | ||||
| Total return: | 2,337.75% | ||||
| Average annual return: | 17.31% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $243,933.01 | ||||
As we can see, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 17.31%. This would have turned a $10K investment made 20 years ago into $243,933.01 today (as of 06/02/2021). On a total return basis, that’s a result of 2,337.75% (something to think about: how might ROK shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Rockwell Automation, Inc. paid investors a total of $62.77/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 4.28/share, we calculate that ROK has a current yield of approximately 1.57%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.28 against the original $45.88/share purchase price. This works out to a yield on cost of 3.42%.
One more investment quote to leave you with:
“I rarely think the market is right. I believe non-dividend stocks aren’t much more than baseball cards. They are worth what you can convince someone to pay for it.” — Mark Cuban
