“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a twenty year holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 20 years to 2001, investors considering an investment into shares of Mid-America Apartment Communities Inc (NYSE: MAA) may have been pondering this very question and thinking about their potential investment result over a full twenty year time horizon. Here’s how that would have worked out.
| Start date: | 07/26/2001 |
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| End date: | 07/23/2021 | ||||
| Start price/share: | $26.14 | ||||
| End price/share: | $187.60 | ||||
| Starting shares: | 382.56 | ||||
| Ending shares: | 1,018.56 | ||||
| Dividends reinvested/share: | $57.43 | ||||
| Total return: | 1,810.82% | ||||
| Average annual return: | 15.89% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $191,104.18 | ||||
As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 15.89%. This would have turned a $10K investment made 20 years ago into $191,104.18 today (as of 07/23/2021). On a total return basis, that’s a result of 1,810.82% (something to think about: how might MAA shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Mid-America Apartment Communities Inc paid investors a total of $57.43/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 4.1/share, we calculate that MAA has a current yield of approximately 2.19%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.1 against the original $26.14/share purchase price. This works out to a yield on cost of 8.38%.
More investment wisdom to ponder:
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.” — Warren Buffett
