“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 twenty year holding period for an investor who was considering Applied Materials, Inc. (NASD: AMAT) back in 2002, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 06/03/2002 |
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| End date: | 06/02/2022 | ||||
| Start price/share: | $21.43 | ||||
| End price/share: | $117.33 | ||||
| Starting shares: | 466.64 | ||||
| Ending shares: | 618.46 | ||||
| Dividends reinvested/share: | $7.65 | ||||
| Total return: | 625.64% | ||||
| Average annual return: | 10.41% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $72,550.35 | ||||
The above analysis shows the twenty year investment result worked out quite well, with an annualized rate of return of 10.41%. This would have turned a $10K investment made 20 years ago into $72,550.35 today (as of 06/02/2022). On a total return basis, that’s a result of 625.64% (something to think about: how might AMAT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Applied Materials, Inc. paid investors a total of $7.65/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 1.04/share, we calculate that AMAT has a current yield of approximately 0.89%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.04 against the original $21.43/share purchase price. This works out to a yield on cost of 4.15%.
One more piece of investment wisdom to leave you with:
“Ensure management’s interests are aligned with shareholders.” — Sam Zell
