“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into APA Corp (NASD: APA)? Today, we examine the outcome of a twenty year investment into the stock back in 2003.
| Start date: | 07/28/2003 |
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| End date: | 07/26/2023 | ||||
| Start price/share: | $31.51 | ||||
| End price/share: | $39.99 | ||||
| Starting shares: | 317.36 | ||||
| Ending shares: | 409.05 | ||||
| Dividends reinvested/share: | $13.37 | ||||
| Total return: | 63.58% | ||||
| Average annual return: | 2.49% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $16,357.53 | ||||
As shown above, the twenty year investment result worked out as follows, with an annualized rate of return of 2.49%. This would have turned a $10K investment made 20 years ago into $16,357.53 today (as of 07/26/2023). On a total return basis, that’s a result of 63.58% (something to think about: how might APA shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that APA Corp paid investors a total of $13.37/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/share, we calculate that APA has a current yield of approximately 2.50%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1 against the original $31.51/share purchase price. This works out to a yield on cost of 7.93%.
One more piece of investment wisdom to leave you with:
“Most investors want to do today what they should have done yesterday.” — Larry Summers
