“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 US Bancorp (NYSE: USB) back in 2002, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 04/18/2002 |
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| End date: | 04/14/2022 | ||||
| Start price/share: | $23.60 | ||||
| End price/share: | $52.71 | ||||
| Starting shares: | 423.73 | ||||
| Ending shares: | 788.49 | ||||
| Dividends reinvested/share: | $22.40 | ||||
| Total return: | 315.61% | ||||
| Average annual return: | 7.38% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $41,548.25 | ||||
The above analysis shows the two-decade investment result worked out well, with an annualized rate of return of 7.38%. This would have turned a $10K investment made 20 years ago into $41,548.25 today (as of 04/14/2022). On a total return basis, that’s a result of 315.61% (something to think about: how might USB shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that US Bancorp paid investors a total of $22.40/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 1.84/share, we calculate that USB has a current yield of approximately 3.49%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.84 against the original $23.60/share purchase price. This works out to a yield on cost of 14.79%.
Here’s one more great investment quote before you go:
“If you’re looking for a home run, a great investment for five years or 10 years or more, then the only way to beat this enormous fog that covers the future is to identify a long-term trend that will give a particular business some sort of edge.” — Ralph Wanger
