“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 twenty year holding period for an investor who was considering AvalonBay Communities, Inc. (NYSE: AVB) back in 2004, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 09/27/2004 |
|
|||
| End date: | 09/26/2024 | ||||
| Start price/share: | $59.28 | ||||
| End price/share: | $226.53 | ||||
| Starting shares: | 168.69 | ||||
| Ending shares: | 345.56 | ||||
| Dividends reinvested/share: | $96.78 | ||||
| Total return: | 682.80% | ||||
| Average annual return: | 10.83% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $78,277.34 | ||||
As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 10.83%. This would have turned a $10K investment made 20 years ago into $78,277.34 today (as of 09/26/2024). On a total return basis, that’s a result of 682.80% (something to think about: how might AVB shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that AvalonBay Communities, Inc. paid investors a total of $96.78/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 6.8/share, we calculate that AVB has a current yield of approximately 3.00%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.8 against the original $59.28/share purchase price. This works out to a yield on cost of 5.06%.
One more piece of investment wisdom to leave you with:
“Waiting helps you as an investor and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.” — Charlie Munger
