“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 2004, and take a look at what happened to investors who asked that very question about Travelers Companies Inc (NYSE: TRV), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 06/14/2004 |
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| End date: | 06/13/2024 | ||||
| Start price/share: | $40.79 | ||||
| End price/share: | $207.07 | ||||
| Starting shares: | 245.16 | ||||
| Ending shares: | 393.50 | ||||
| Dividends reinvested/share: | $45.11 | ||||
| Total return: | 714.82% | ||||
| Average annual return: | 11.05% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $81,446.06 | ||||
As we can see, the two-decade investment result worked out quite well, with an annualized rate of return of 11.05%. This would have turned a $10K investment made 20 years ago into $81,446.06 today (as of 06/13/2024). On a total return basis, that’s a result of 714.82% (something to think about: how might TRV shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Travelers Companies Inc paid investors a total of $45.11/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 4.2/share, we calculate that TRV has a current yield of approximately 2.03%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.2 against the original $40.79/share purchase price. This works out to a yield on cost of 4.98%.
One more investment quote to leave you with:
“I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.” — Charlie Munger
