“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 two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Hartford Financial Services Group Inc. (NYSE: HIG) back in 2002: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 10/31/2002 |
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| End date: | 10/28/2022 | ||||
| Start price/share: | $39.50 | ||||
| End price/share: | $72.16 | ||||
| Starting shares: | 253.16 | ||||
| Ending shares: | 390.66 | ||||
| Dividends reinvested/share: | $20.43 | ||||
| Total return: | 181.90% | ||||
| Average annual return: | 5.32% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $28,201.92 | ||||
The above analysis shows the two-decade investment result worked out well, with an annualized rate of return of 5.32%. This would have turned a $10K investment made 20 years ago into $28,201.92 today (as of 10/28/2022). On a total return basis, that’s a result of 181.90% (something to think about: how might HIG shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Hartford Financial Services Group Inc. paid investors a total of $20.43/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 1.7/share, we calculate that HIG has a current yield of approximately 2.36%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.7 against the original $39.50/share purchase price. This works out to a yield on cost of 5.97%.
One more investment quote to leave you with:
“While it might seem that anyone can be a value investor, the essential characteristics of this type of investor-patience, discipline, and risk aversion-may well be genetically determined.” — Seth Klarman
