“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Western Digital Corp (NASD: WDC) back in 2004: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 12/20/2004 |
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| End date: | 12/19/2024 | ||||
| Start price/share: | $10.25 | ||||
| End price/share: | $59.62 | ||||
| Starting shares: | 975.61 | ||||
| Ending shares: | 1,212.72 | ||||
| Dividends reinvested/share: | $13.55 | ||||
| Total return: | 623.03% | ||||
| Average annual return: | 10.39% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $72,287.82 | ||||
As we can see, the two-decade investment result worked out quite well, with an annualized rate of return of 10.39%. This would have turned a $10K investment made 20 years ago into $72,287.82 today (as of 12/19/2024). On a total return basis, that’s a result of 623.03% (something to think about: how might WDC shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Western Digital Corp paid investors a total of $13.55/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/share, we calculate that WDC has a current yield of approximately 3.35%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $10.25/share purchase price. This works out to a yield on cost of 32.68%.
Another great investment quote to think about:
“If I’ve learned one thing in this life it’s this: even if you lose, don’t lose the lesson.” — Daymond John
