“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 twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Constellation Brands Inc (NYSE: STZ) back in 2002: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 07/29/2002 |
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| End date: | 07/26/2022 | ||||
| Start price/share: | $14.41 | ||||
| End price/share: | $241.50 | ||||
| Starting shares: | 693.96 | ||||
| Ending shares: | 761.59 | ||||
| Dividends reinvested/share: | $17.72 | ||||
| Total return: | 1,739.23% | ||||
| Average annual return: | 15.67% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $183,975.98 | ||||
As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 15.67%. This would have turned a $10K investment made 20 years ago into $183,975.98 today (as of 07/26/2022). On a total return basis, that’s a result of 1,739.23% (something to think about: how might STZ shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 20 years, Constellation Brands Inc has paid $17.72/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 3.2/share, we calculate that STZ has a current yield of approximately 1.33%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.2 against the original $14.41/share purchase price. This works out to a yield on cost of 9.23%.
More investment wisdom to ponder:
“Never is there a better time to buy a stock than when a basically sound company, for whatever reason, temporarily falls out of favor with the investment community.” — Geraldine Weiss
