“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 2003, and take a look at what happened to investors who asked that very question about NetApp, Inc. (NASD: NTAP), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 05/19/2003 |
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| End date: | 05/17/2023 | ||||
| Start price/share: | $14.96 | ||||
| End price/share: | $65.41 | ||||
| Starting shares: | 668.45 | ||||
| Ending shares: | 854.92 | ||||
| Dividends reinvested/share: | $12.98 | ||||
| Total return: | 459.20% | ||||
| Average annual return: | 8.98% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $55,878.28 | ||||
As shown above, the two-decade investment result worked out well, with an annualized rate of return of 8.98%. This would have turned a $10K investment made 20 years ago into $55,878.28 today (as of 05/17/2023). On a total return basis, that’s a result of 459.20% (something to think about: how might NTAP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that NetApp, Inc. paid investors a total of $12.98/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 2/share, we calculate that NTAP has a current yield of approximately 3.06%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $14.96/share purchase price. This works out to a yield on cost of 20.45%.
Here’s one more great investment quote before you go:
“Ensure management’s interests are aligned with shareholders.” — Sam Zell
