“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 PulteGroup Inc (NYSE: PHM) back in 2002, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 02/04/2002 |
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| End date: | 02/01/2022 | ||||
| Start price/share: | $11.92 | ||||
| End price/share: | $53.19 | ||||
| Starting shares: | 838.93 | ||||
| Ending shares: | 986.80 | ||||
| Dividends reinvested/share: | $4.14 | ||||
| Total return: | 424.88% | ||||
| Average annual return: | 8.64% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $52,479.82 | ||||
As shown above, the two-decade investment result worked out well, with an annualized rate of return of 8.64%. This would have turned a $10K investment made 20 years ago into $52,479.82 today (as of 02/01/2022). On a total return basis, that’s a result of 424.88% (something to think about: how might PHM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PulteGroup Inc paid investors a total of $4.14/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 .6/share, we calculate that PHM has a current yield of approximately 1.13%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .6 against the original $11.92/share purchase price. This works out to a yield on cost of 9.48%.
Here’s one more great investment quote before you go:
“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” — Peter Lynch
