“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 Kroger Co (NYSE: KR) 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: | 11/01/2002 |
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| End date: | 10/31/2022 | ||||
| Start price/share: | $7.45 | ||||
| End price/share: | $47.29 | ||||
| Starting shares: | 1,342.28 | ||||
| Ending shares: | 1,772.43 | ||||
| Dividends reinvested/share: | $6.51 | ||||
| Total return: | 738.18% | ||||
| Average annual return: | 11.21% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $83,802.33 | ||||
The above analysis shows the two-decade investment result worked out quite well, with an annualized rate of return of 11.21%. This would have turned a $10K investment made 20 years ago into $83,802.33 today (as of 10/31/2022). On a total return basis, that’s a result of 738.18% (something to think about: how might KR shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Kroger Co paid investors a total of $6.51/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 KR has a current yield of approximately 2.20%. 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 $7.45/share purchase price. This works out to a yield on cost of 29.53%.
One more investment quote to leave you with:
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” — George Soros
