“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 AT&T Inc (NYSE: T) back in 2003: 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: | 02/18/2003 |
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| End date: | 02/14/2023 | ||||
| Start price/share: | $17.89 | ||||
| End price/share: | $19.15 | ||||
| Starting shares: | 558.97 | ||||
| Ending shares: | 1,703.02 | ||||
| Dividends reinvested/share: | $25.97 | ||||
| Total return: | 226.13% | ||||
| Average annual return: | 6.09% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $32,625.66 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 6.09%. This would have turned a $10K investment made 20 years ago into $32,625.66 today (as of 02/14/2023). On a total return basis, that’s a result of 226.13% (something to think about: how might T shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that AT&T Inc paid investors a total of $25.97/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 1.11/share, we calculate that T has a current yield of approximately 5.80%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.11 against the original $17.89/share purchase price. This works out to a yield on cost of 32.42%.
Here’s one more great investment quote before you go:
“As in roulette, same is true of the stock trader, who will find that the expense of trading weights the dice heavily against him.” — Benjamin Graham
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