“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— 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 five year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Darden Restaurants, Inc. (NYSE: DRI) back in 2018: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full five year investment time horizon and then actually held for these past 5 years, here’s how that investment would have turned out.
| Start date: | 11/27/2018 |
|
|||
| End date: | 11/24/2023 | ||||
| Start price/share: | $109.93 | ||||
| End price/share: | $156.01 | ||||
| Starting shares: | 90.97 | ||||
| Ending shares: | 103.82 | ||||
| Dividends reinvested/share: | $17.55 | ||||
| Total return: | 61.97% | ||||
| Average annual return: | 10.14% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $16,199.27 | ||||
As shown above, the five year investment result worked out quite well, with an annualized rate of return of 10.14%. This would have turned a $10K investment made 5 years ago into $16,199.27 today (as of 11/24/2023). On a total return basis, that’s a result of 61.97% (something to think about: how might DRI shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Darden Restaurants, Inc. paid investors a total of $17.55/share in dividends over the 5 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 5.24/share, we calculate that DRI has a current yield of approximately 3.36%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.24 against the original $109.93/share purchase price. This works out to a yield on cost of 3.06%.
One more investment quote to leave you with:
“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” — George Soros
