“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 Ralph Lauren Corp (NYSE: RL), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 08/12/2002 |
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| End date: | 08/10/2022 | ||||
| Start price/share: | $22.09 | ||||
| End price/share: | $95.52 | ||||
| Starting shares: | 452.69 | ||||
| Ending shares: | 563.05 | ||||
| Dividends reinvested/share: | $23.10 | ||||
| Total return: | 437.82% | ||||
| Average annual return: | 8.77% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $53,762.89 | ||||
The above analysis shows the two-decade investment result worked out well, with an annualized rate of return of 8.77%. This would have turned a $10K investment made 20 years ago into $53,762.89 today (as of 08/10/2022). On a total return basis, that’s a result of 437.82% (something to think about: how might RL shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Ralph Lauren Corp paid investors a total of $23.10/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 3/share, we calculate that RL has a current yield of approximately 3.14%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3 against the original $22.09/share purchase price. This works out to a yield on cost of 14.21%.
One more investment quote to leave you with:
“I rarely think the market is right. I believe non-dividend stocks aren’t much more than baseball cards. They are worth what you can convince someone to pay for it.” — Mark Cuban
