“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 Garmin Ltd (NYSE: GRMN) back in 2002: 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: | 01/28/2002 |
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| End date: | 01/25/2022 | ||||
| Start price/share: | $9.64 | ||||
| End price/share: | $121.37 | ||||
| Starting shares: | 1,037.34 | ||||
| Ending shares: | 1,809.29 | ||||
| Dividends reinvested/share: | $27.49 | ||||
| Total return: | 2,095.93% | ||||
| Average annual return: | 16.70% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $219,677.02 | ||||
As we can see, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 16.70%. This would have turned a $10K investment made 20 years ago into $219,677.02 today (as of 01/25/2022). On a total return basis, that’s a result of 2,095.93% (something to think about: how might GRMN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Garmin Ltd paid investors a total of $27.49/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 2.68/share, we calculate that GRMN has a current yield of approximately 2.21%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.68 against the original $9.64/share purchase price. This works out to a yield on cost of 22.93%.
More investment wisdom to ponder:
“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.” — Warren Buffett
