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“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

— 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 decade-long holding period for an investor who was considering Ulta Beauty Inc (NASD: ULTA) back in 2011, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 08/16/2011
$10,000

08/16/2011
$67,665

08/13/2021
End date: 08/13/2021
Start price/share: $55.56
End price/share: $371.85
Starting shares: 179.99
Ending shares: 182.02
Dividends reinvested/share: $1.00
Total return: 576.83%
Average annual return: 21.07%
Starting investment: $10,000.00
Ending investment: $67,665.21

As we can see, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 21.07%. This would have turned a $10K investment made 10 years ago into $67,665.21 today (as of 08/13/2021). On a total return basis, that’s a result of 576.83% (something to think about: how might ULTA shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Ulta Beauty Inc paid investors a total of $1.00/share in dividends over the 10 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 1/share, we calculate that ULTA has a current yield of approximately 0.27%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1 against the original $55.56/share purchase price. This works out to a yield on cost of 0.49%.

One more piece of investment wisdom to leave you with:
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” — George Soros