“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?
A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a twenty year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Genuine Parts Co. (NYSE: GPC) back in 2003. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 10/03/2003 |
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| End date: | 10/02/2023 | ||||
| Start price/share: | $32.33 | ||||
| End price/share: | $145.18 | ||||
| Starting shares: | 309.31 | ||||
| Ending shares: | 574.98 | ||||
| Dividends reinvested/share: | $45.16 | ||||
| Total return: | 734.76% | ||||
| Average annual return: | 11.19% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $83,525.57 | ||||
As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 11.19%. This would have turned a $10K investment made 20 years ago into $83,525.57 today (as of 10/02/2023). On a total return basis, that’s a result of 734.76% (something to think about: how might GPC shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Genuine Parts Co. paid investors a total of $45.16/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 3.8/share, we calculate that GPC has a current yield of approximately 2.62%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.8 against the original $32.33/share purchase price. This works out to a yield on cost of 8.10%.
Here’s one more great investment quote before you go:
“I think you have to learn that there’s a company behind every stock, and that there’s only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies.” — Peter Lynch
