“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 two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Target Corp (NYSE: TGT) back in 2002: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 04/01/2002 |
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| End date: | 03/30/2022 | ||||
| Start price/share: | $42.85 | ||||
| End price/share: | $221.96 | ||||
| Starting shares: | 233.37 | ||||
| Ending shares: | 344.59 | ||||
| Dividends reinvested/share: | $28.68 | ||||
| Total return: | 664.85% | ||||
| Average annual return: | 10.70% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $76,417.76 | ||||
The above analysis shows the two-decade investment result worked out quite well, with an annualized rate of return of 10.70%. This would have turned a $10K investment made 20 years ago into $76,417.76 today (as of 03/30/2022). On a total return basis, that’s a result of 664.85% (something to think about: how might TGT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Target Corp paid investors a total of $28.68/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 3.6/share, we calculate that TGT has a current yield of approximately 1.62%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.6 against the original $42.85/share purchase price. This works out to a yield on cost of 3.78%.
Here’s one more great investment quote before you go:
“Searching for companies is like looking for grubs under rocks: if you turn over 10 rocks you’ll likely find one grub; if you turn over 20 rocks you’ll find two.” — Peter Lynch
