“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a two-decade holding period for an investor who was considering Procter & Gamble Company (NYSE: PG) back in 2003, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 12/22/2003 |
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| End date: | 12/19/2023 | ||||
| Start price/share: | $49.08 | ||||
| End price/share: | $146.17 | ||||
| Starting shares: | 203.75 | ||||
| Ending shares: | 353.07 | ||||
| Dividends reinvested/share: | $46.67 | ||||
| Total return: | 416.08% | ||||
| Average annual return: | 8.55% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $51,616.88 | ||||
As shown above, the two-decade investment result worked out well, with an annualized rate of return of 8.55%. This would have turned a $10K investment made 20 years ago into $51,616.88 today (as of 12/19/2023). On a total return basis, that’s a result of 416.08% (something to think about: how might PG shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Procter & Gamble Company paid investors a total of $46.67/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 3.7628/share, we calculate that PG has a current yield of approximately 2.57%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.7628 against the original $49.08/share purchase price. This works out to a yield on cost of 5.24%.
More investment wisdom to ponder:
“A 10% decline in the market is fairly common, it happens about once a year. Investors who realize this are less likely to sell in a panic, and more likely to remain invested, benefitting from the wealthbuilding power of stocks.” — Christopher Davis
