“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into APA Corp (NASD: APA)? Today, we examine the outcome of a two-decade investment into the stock back in 2002.
| Start date: | 04/04/2002 |
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| End date: | 04/01/2022 | ||||
| Start price/share: | $26.68 | ||||
| End price/share: | $42.22 | ||||
| Starting shares: | 374.81 | ||||
| Ending shares: | 472.98 | ||||
| Dividends reinvested/share: | $12.41 | ||||
| Total return: | 99.69% | ||||
| Average annual return: | 3.52% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $19,976.82 | ||||
As we can see, the two-decade investment result worked out as follows, with an annualized rate of return of 3.52%. This would have turned a $10K investment made 20 years ago into $19,976.82 today (as of 04/01/2022). On a total return basis, that’s a result of 99.69% (something to think about: how might APA shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that APA Corp paid investors a total of $12.41/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 .5/share, we calculate that APA has a current yield of approximately 1.18%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .5 against the original $26.68/share purchase price. This works out to a yield on cost of 4.42%.
More investment wisdom to ponder:
“I’d like to live as a poor man with lots of money.” — Pablo Picasso
