“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 Starbucks Corp. (NASD: SBUX), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 12/19/2003 |
|
|||
| End date: | 12/18/2023 | ||||
| Start price/share: | $8.03 | ||||
| End price/share: | $96.56 | ||||
| Starting shares: | 1,245.33 | ||||
| Ending shares: | 1,583.82 | ||||
| Dividends reinvested/share: | $14.88 | ||||
| Total return: | 1,429.34% | ||||
| Average annual return: | 14.60% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $152,876.58 | ||||
As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 14.60%. This would have turned a $10K investment made 20 years ago into $152,876.58 today (as of 12/18/2023). On a total return basis, that’s a result of 1,429.34% (something to think about: how might SBUX shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Starbucks Corp. paid investors a total of $14.88/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 2.28/share, we calculate that SBUX has a current yield of approximately 2.36%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.28 against the original $8.03/share purchase price. This works out to a yield on cost of 29.39%.
Another great investment quote to think about:
“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
