“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a two-decade period?
Today, let’s look backwards in time to 2002, and take a look at what happened to investors who asked that very question about AFLAC Inc (NYSE: AFL), by taking a look at the investment outcome over a two-decade holding period.
|Average annual return:||9.14%|
As shown above, the two-decade investment result worked out well, with an annualized rate of return of 9.14%. This would have turned a $10K investment made 20 years ago into $57,556.62 today (as of 07/28/2022). On a total return basis, that’s a result of 475.23% (something to think about: how might AFL shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that AFLAC Inc paid investors a total of $13.50/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 1.6/share, we calculate that AFL has a current yield of approximately 2.84%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.6 against the original $14.95/share purchase price. This works out to a yield on cost of 19.00%.
One more investment quote to leave you with:
“Investing is the intersection of economics and psychology.” — Seth Klarman